Two commissioners from the United States Securities and Exchange Commission have slammed their agency for seemingly cornering non-fungible token-themed restaurant Flyfish Club into a $750,000 settlement.
The SEC said Flyfish “conducted an unregistered offering of crypto asset securities” by selling 1,600 NFTs to US investors and making $14.8 million from two price points, according to a Sept. 16 cease and desist order.
However, SEC commissioners Hester Peirce and Mark Uyeda criticized the enforcement action, arguing the Flyfish NFTs were “simply a different way to sell memberships” and thus didn’t trigger securities laws.
In a dissenting letter, the two commissioners said the Flyfish NFTs didn’t pose a “threat” to investors and stressed the SEC must provide NFT innovators with more freedom to experiment:
“Creative people should be able to experiment with NFTs without having to consult a high-priced tea-leaf reader—ahem, lawyer. The Commission can change its menu to include a healthy serving of guidance to give non-securities NFT creators the freedom to experiment.”
This enforcement action “undermines trust in Chef SEC,” the securities commissioners added.
The NFTs would have allowed customers to eat and drink in their yet-to-be-built restaurant in Manhattan, New York. According to the restaurant’s website, it is set to open this month.
Preview of one of Flyfish Club’s lounge areas. Source: Flyfish Club on Instagram
The SEC claimed that registration was necessary as the Flyfish NFTs were treated as investment contracts and thus satisfied the Howey test’s four prongs.
Related: Artists sue SEC over confusing security status of NFTs
While Flyfish didn’t admit or deny the agency’s accusations, it agreed to destroy all remaining Flyfish NFTs in its possession and not accept future royalties from the sales of NFTs.
The Gary Gensler-led SEC pressed similar charges against NFT projects Impact Theory and Stoner Cats 2 over the past 13 months and issued a Wells Notice against one of the largest NFT marketplaces, OpenSea, on Aug. 28, suggesting potential enforcement action in the coming weeks or months.
The Flyfish NFTs were spearheaded by entrepreneur Gary Vaynerchuk, who became a prominent figure in the 2021 NFT summer and has extensive experience in the investment side of hospitality.
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