The US Securities and Exchange Commission (SEC) fined Flyfish Club $750,000 on 16 September 2024. The fine was levied for the unauthorized sale of Non-Fungible Tokens (NFTs) deemed to be securities.
According to the SEC filing, Flyfish conducted an unregistered offering of NFTs between August 2021 and May 2022, offering and selling approximately 1,600 NFTs to the public, generating gross proceeds of approximately $14.8 million.
Furthermore, the SEC accused Flyfish of offering NFTs “to fund the construction and operation of a members-only club in New York City.
The Manhattan-based Flyfish Club, has reached a settlement with the SEC over alleged infractions.
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But What Is Flyfish Club?
Flyfish Club is described as the world’s first member’s only private dining club, where membership is purchased on the blockchain as a NFT and owned by the token-holder to gain access.
The club promised exclusive access to a private dining venue. FFC members are also promised unlimited access to a private dining room that will span across 10,000+ square feet in an iconic, New York City location. The space will consist of a bustling cocktail lounge, upscale restaurant, intimate omakase room, and an outdoor space.
This approach attracted a diverse clientele eager to merge culinary experiences with cutting-edge technology.
SEC’s Investigation Reveals Club’s Failure To Register NFTs
@Flyfishclub is facing legal actions from #SEC claiming the #NFT is a security and ordering a cease and desist of all #Flyfish #NFTs Personally I see it as a creative way to sell membership to an exclusive establishment. The #SEC doesnt think so. pic.twitter.com/Qhz67DbZPi
— Crypto Lawyer 🇭🇳🇺🇲 (@BlackSwanEsq) September 16, 2024
The SEC’s investigation into Flyfish Club centered around whether the NFTs sold constituted investment contracts under the Howey Test, a legal standard used to determine whether certain transactions qualify as investment contracts.
The Howey Test considers an arrangement to be an investment contract if there is an investment of money in a common enterprise with an expectation of profits derived from the efforts of others.
According to the SEC, people were led to expect potential financial returns from their memberships, due to the club’s exclusivity and potential appreciation in NFT value.
Hence, the SEC insists that Flyfish Club failed to register these NFTs as securities or seek an exemption.
The SEC’s ruling has elicited varied responses from industry stakeholders. Critics argue that heavy-handed regulation could stifle creativity and hinder the growth of emerging technologies.
Meanwhile, Flyfish Club issued a statement expressing disappointment.
The company committed to resolving the matter. It said that it will work closely with legal advisors to ensure future offerings align with securities regulations.
Related: New Bill Proposes Enhanced Collaboration Between SEC And CFTC On Digital Assets
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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