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SEC to look at possible securities violations in NFT market SEC to look at possible securities violations in NFT market

SEC to look at possible securities violations in NFT market

The SEC inquiry appears to be focused on the use of fractionalized NFTs.

SEC to look at possible securities violations in NFT market

Cover art/illustration via CryptoSlate

The US Securities and Exchange Commission (SEC) is investigating NFT marketplaces and creators for possible breaches of its securities rules.ย 

According to Bloomberg, this investigation would mark the first regulatory scrutiny of NFTs since the sector’s explosive growth started.

NFTs reportedly under SEC radar

The report claimed that the SEC enforcement unit has sent subpoenas asking for more information on certain NFT offerings. This is part of its quest to find out whether “certain nonfungible tokensโ€ฆ are being utilized to raise money like traditional securities.”

“Over the past several months, attorneys in the SECโ€™s enforcement unit have sent subpoenas demanding information about the token offerings.”

The inquiry appears to focus mostly on the use of fractional NFTs. With the space’s growth, fractional NFTs have become very common as it allows retail investors to purchase a stake in high-value tokens. The SEC appears to consider such a practice to be selling unregistered securities.ย 

As far back as 2021, SEC commissioner Hester Peirce warned NFT issuers to be careful when selling fractional NFTs as this could amount to creating an investment product.

SECโ€™s litany of crypto regulatory skirmishes

With the SEC spotlight now on NFTs, it joins the list of crypto products that the watchdog has under its regulatory scrutiny. The commission under Gary Gensler has already investigated crypto lending products, many of which it considers to be security.

Last year, it got into a public dispute with Coinbase after the crypto exchange announced issuing a crypto lending product. SECโ€™s threat of legal action against the company was enough for it to shelve its plans.

Recently, it also fined BlockFi $100 million for its failure to list its high yield lending products as securities. The controversy on what amounts to security in the crypto l continues.

XRP parent company Ripple Labs has also been embroiled in a legal tussle over selling unregistered securities since 2020.

With this new clampdown on NFTs, marketplaces such as Fractional.art and Niftex may be found wanting. The platforms sell fractionalized NFTs of high-value tokens such as the original Doge NFT and Zombie CryptoPunk.

However, fractionalized NFTs only represent the overall evolution of the NFT space. The sector has been one of the fastest-growing crypto niches and continues to see record trades even during the bear market.

In addition, we recently reported that it accounted for most transfers on the Ethereum network in recent months.

Posted In: NFTs