SEC Going After NFTs? Reports Say Regulator Concerned About Illegal Token Offerings

The U.S. Securities and Exchange Commission is reportedly looking into the legality of certain elements of the non-fungible token (NFT) space, and considering whether some NFT activity may violate securities laws.

According to a report from Bloomberg, the SEC is launching a probe into whether certain NFTs are being used to raise money in the same way that traditional securities raise money. In other words, the SEC, headed by Chair Gary Gensler, may believe that NFTs are unregistered securities, the same argument used against Ripple Labs in the ongoing lawsuit filed December 2020.

Bloomberg says that over the last several months, attorneys from the SEC’s enforcement unit have sent subpoenas asking for information regarding NFT offerings, though no particular projects were named.

The SEC is also supposedly seeking information regarding fractional NFTs, or pieces of an NFT broken up into shares. The people familiar with the matter asked not to be named publicly.

While Chair Gensler has been more vocal about his desire for a hardline crypto regulatory framework, Hester Peirce aka “crypto mom” has been famously more accommodating to the industry, including towards NFTs.

In January, Peirce told CoinDesk that she expected increased scrutiny on NFTs from the SEC given the rapid growth of the industry.

“I think that’s an area where people do need to be careful,” she said. “I think we’ll see during 2022 an increasing fractionalization of NFTs because these are valuable assets.”

In January, Peirce told Roll Call that using NFTs to represent shares in a company would probably be something that would go against securities laws.

“As a regulator, I mean it’s something that I’m watching because the growth has been pretty astounding… I’m sure people are thinking about ways that they can use the idea of an NFT in the financial space.

It does make sense, in any of these emerging areas where there’s a potential for securities laws to apply, for us to say here are some of the things people ought to be thinking about…”

NFTs dominated the crypto markets in 2021, reaching $117 billion in volume by the fourth quarter with roughly 2.7 million active wallets. Currently, the market remains in a correction with the rest of digital assets.