SEC targets NFT projects with subpoena over potential securities violations, according to Dilendorf Law Firm and Andersen, PC
NEW YORK, 21 February 2023 /PRNewswire/ — The US Securities and Exchange Commission (SEC) is currently conducting investigations that may surprise some NFT projects and market participants. These investigations aim to uncover potential violations of federal securities laws related to the sale of NFTs.
On 3 May 2022the SEC announced that it would double the size of the enforcement action Crypto Assets and cyber entities. The expanded Crypto The Assets and Cyber Unit is believed to be actively scrutinizing NFT projects to determine whether any violations of federal securities laws have occurred. SEC’s Targeting of Enforcement Actions crypto-related projects increased following the decline of FTX, including enforcement actions targeting stablecoins and staking activities.
When the SEC initiates an enforcement action related to NFTs, it typically begins by issuing subpoenas to the projects, often including to the founders and other members involved in the project. In cases where the public identity of these individuals is unknown, it is not uncommon for the SEC to seek to identify them by subpoenaing third-party service providers or social media, such as Twitter.
Once a formal investigative warrant is issued, the SEC staff can issue subpoenas requiring witnesses to testify and produce documents, and other relevant documents, including communications on social media such as Discord and Telegram related to their activities.
Those who receive SEC subpoenas should treat them seriously, as failure to comply with federal securities regulations while selling NFTs can result in civil or criminal penalties.
The question of whether NFTs can generally be classified as securities under US law has an uncertain answer. Although some NFTs may not be considered securities by US regulators, there is a strong possibility that some NFTs may be subject to such classification. Whether an NFT is a security is a matter of fact and circumstance.
Although NFTs are marketed as unique digital assets, some NFTs currently available in the market may have characteristics similar to “passive investments”. It can be expected that the SEC, using the Howey test, may conclude that certain NFTs are securities, as it has already concluded with respect to other digital assets.
Scott AndersenAndersen, PC, and Max Dillendorf, Dilendorf Law Firm PLLC focuses its practice on federal securities law and defense in the digital asset space. They represent individuals and entities under investigation by the SEC and other securities regulators.
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Scott Andersen
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Max Dillendorf
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SOURCE Dilendorf Law Firm; Andersen, PC
