SEC Commissioners Criticize Agency Over $750K Flyfish Club NFT Settlement

Two commissioners from the United States Securities and Exchange Commission (SEC) have criticized the agency’s enforcement action on Flyfish Club, a non-fungible token-themed restaurant for allegedly selling unregistered crypto asset securities. 

SEC Fines Flyfish Club $750K Over NFT Offering

The SEC fined the project with a $750,000 settlement for allegedly selling unregistered crypto asset securities. According to the regulator, Flyfish Club conducted an unregistered offering of crypto asset securities, when it sold about 1,600 NFTs to U.S. investors, making $14.8 million in the process. 

Flyfish Club started an NFT collection that gave members special access to its restaurant, cocktail lounge, and other dining experiences. However, the security agency noted that Flyfish’s NFT offering was an unregistered sale of securities because the tokens were presented as investment contracts, meaning holders could make money by reselling them.

“Flyfish led investors to expect profits from the entrepreneurial and managerial expertise of Flyfish and its principals in building and running the restaurant. Flyfish told investors they could potentially profit from reselling their NFTs at appreciated prices in the secondary market,” the SEC said. 

Flyfish Club, led by entrepreneur Gary Vaynerchuk, who gained fame during the 2021 NFT boom, agreed to also destroy all remaining NFTs and will not accept future royalties from NFT sales according to the SEC’s order.

A Call for Guidance on NFT Experimentation

In a dissenting letter, SEC Commissioners Hester Peirce and Mark Uyeda have voiced strong criticism against this move stating that it undermines trust in the SEC. 

They argue that Flyfish Club’s NFTs were merely a novel way to sell restaurant memberships and, thus, should not trigger securities laws. They also expressed concern that this enforcement action stifles innovation.

“Experiments like Flyfish Club are not a threat to the American investor. Creative people should be able to experiment with NFTs without having to consult a high-priced tea-leaf reader — ahem, a lawyer. The Commission can change its menu to include a healthy serving of guidance to give non-securities NFT creators the freedom to experiment,” they added.

The latest enforcement action joins broader crackdown by the SEC on NFT projects, including recent charges against Impact Theory and Stoner Cats 2, and a Wells Notice issued to OpenSea, one of the largest NFT marketplaces.