According to reports, the US Securities and Exchange Commission (SEC), led by Chairman Gary Gensler, is looking into securities violations by non-fungible token (NFT) developers and marketplaces. Over the last few months, SEC attorneys are said to have summoned a number of stakeholders to seek information on potentially illegal token sales, with an emphasis on ‘fractional NFTs.’ According to the SEC’s rulebook, NFTs, or any other crypto asset for that matter, will be considered securities if they pass the Howey test, which is used by the US securities regulator to establish if a transaction involves a “investment contract.”
According to Bloomberg, the SEC is looking into whether “certain non-fungible tokens… are being utilised to raise money like traditional securities.” according to persons familiar with the situation. Attorneys from the SEC’s enforcement office have reportedly submitted subpoenas to NFT founders in the previous few months, asking information on specific NFTs and other token offers, according to the article.
While crypto-lending products have come under increased regulatory scrutiny in the last year, this report is a significant step forward in the investigation of the NFT sector. The investigation demonstrates that the SEC is particularly interested in how fractional NFTs are employed. If you’re wondering what that means, it means that a more valued NFT is tokenized into smaller pieces and then sold as a fractional NFT.
However, the SEC’s interest in learning more about NFTs is unsurprising, given Hester Peirce, a Commissioner at the SEC who is also known as ‘Crypto Mom,’ suggested in a December interview with Coindesk that the SEC might soon be looking into NFTs. “Given the breadth of the NFT landscape, certain pieces of it may fall within our jurisdiction,” she had added. People should consider where NFTs could potentially run afoul of the securities regulatory environment.”
This probe is the latest in a string of measures aimed at tightening regulation of the cryptocurrency sector in the United States. The Securities and Exchange Commission has ordered BlockFi, a crypto lending company based in New Jersey, to pay a record fine of $100 million (approximately Rs. 755 crore) for failing to identify “high-yield lending products as securities.” However, the company has indicated that it is presently working to register its loan products with the Securities and Exchange Commission.
