Regulators in four states have banded together to accuse a metaverse casino of selling NFTs which violated securities laws.
On Thursday, state securities regulators from Texas, New Jersey, Kentucky and Alabama filed emergency cease-and-desist orders against Slotie NFT, a Tbilisi, Georgia-based virtual gambling entity that markets itself as “the largest and fastest growing online casino network on the blockchain .”
Slotie, which operates gambling in over 150 virtual casinos, sells NFTs that claim to give owners stakes in those casinos, and the ability to passively share in Slotie’s gambling profits. The NFTs – of which Slotie issued 10,000 – are characterized by rarity; the rarer the Slotie NFT, the greater share of the casino revenue the holder is allegedly entitled to. It is one of a large number of NFT projects on the market today that offer similar services and revenue sharing rewards to holders.
State regulators found the NFTs to be unregistered securities issued in violation of state laws. They have ordered Slotie to cease and desist from selling their NFTs immediately in the four states that submitted orders.
Slotie has 30 days to comply with the orders, otherwise the operators risk prison sentences of two to ten years, in addition to fines, if they are prosecuted and convicted.
The gambling company, meanwhile, has made no public acknowledgment of the allegations, doubling down today on Twitter on its allegedly illegal practices.
The move comes at a time when tensions over US regulators’ stance on NFTs appear to have reached an all-time high. Until now, regulators have been particularly tight-lipped about their interest in regulating NFTs as securities, although recent developments indicates that may soon change.
Jeremy Goldman, a lawyer who specializes in NFTs, said Decrypt he thinks it makes perfect sense that an NFT project like Slotie would be one of the first to incur the wrath of a securities regulator.
“This is low-hanging fruit,” Goldman said. “[Slotie NFTs] is marketed as providing holders with a passive income in income generated through the efforts of Slotties and its partners, which is the definition of a security.”
One reason these states may have chosen to pursue Slotie for securities violations, Goldman says, is the fact that the case involves gambling, a highly regulated and closely monitored sector of state law enforcement.
“I imagine part of the reason it came from the states is because they started with concerns about gambling,” Goldman said. “And then, I guess, as a matter of litigation strategy and enforcement, they thought the securities angle was an easier shot.”
How this state-level action against an online casino will affect broader conversations about federal-level regulation of multibillion-dollar NFT collections remains to be seen.
Earlier this month, said an anonymous source Bloomberg that the Securities and Exchange Commission (SEC) is investigating whether Yuga Labs, the $4 billion company behind prominent NFT collection Bored Ape Yacht Club, violated securities laws in its promotion and sale of NFTs.
Some experts believed the move could have been a ploy by the SEC to create headlines and fend off other government bodies, including the Commodities Future Trading Commission (CFTC), from planting flags on the turf of NFT regulation.
Goldman sees the biggest development from this week’s enforcement action against Slotie as an indication that there may be even more dogs in the fight than previously expected.
“The federal agencies are not the only sheriffs in town,” Goldman said. “I can only speculate, but it feels to me that there is a bit of jockeying for power and control. And this is a signal that states still have a role to play when it comes to even securities in the crypto space.”
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