Flyfish Club NFT Sale Violates Securities Laws, Faces $750K Fine By SEC

Key Points:

• The SEC charged Flyfish Club for raising $14.8 million through unregistered NFT sales, which it deemed as securities.
• SEC Commissioners Peirce and Uyeda dissented, arguing that the Flyfish Club NFTs were utility tokens tied to membership benefits, not securities for profit.

The United States Securities and Exchange Commission has filed an action against New York-based Flyfish Club on the grounds of conducting an unregistered sale of non-fungible tokens.

Read more: Kraken Seeks Jury Trial In Ongoing SEC Lawsuit

SEC Slams Flyfish Club with Fines Over Unregistered Sales of NFTs

The SEC said that Flyfish raised about $14.8 million by selling about 1,600 NFTs between August 2021 and May 2022. Specifically, the Flyfish Club NFTs were being issued as memberships to give their holders access to an exclusive and high-end dining club in New York City.

According to the SEC, the NFTs issued by the Flyfish Club are crypto-asset securities, and the firm violated federal securities law through the non-registration of the security offering. This week’s enforcement order from the SEC calls for Flyfish to cease the acceptance of royalty payments from secondary market trading of its NFTs, to destroy any remaining Flyfish Club NFTs in the possession of the company, and to pay a civil penalty of $750,000.

The company must comply with the settlement by September 26. Despite the legal action against it, Flyfish Club restaurant opens on September 20, according to the website and social media posts by the club.

The SEC said that Flyfish made false representations to investors that they could generate profits by reselling NFTs at higher values, or by leasing them out to third parties.

The regulatory also explained that the Flyfish Club were sold on expectations of investors reaping returns from managerial efforts of the firm in creating the exclusive restaurant. Current holders of the NFTs are still allowed to rent their respective tokens to those who’d like access to the club, while new memberships to the club are now being solicited via application.

SEC Commissioners Disagree on Flyfish Club NFT Classification

Not everyone at the SEC voted for the crackdown. Commissioners Hester Peirce and Mark Uyeda opposed the decision, citing that Flyfish Club NFTs are utility tokens, not securities. They believe buyers are after experiences in culinary delights, not financial benefits.

In recent months, the SEC has increased enforcement against NFT projects, including actions against podcast studio Impact Theory and entertainment company. Stoner Cats 2. The SEC also issued a Wells Notice to OpenSea, although its investigations are still ongoing.