NFTs have insinuated nearly every aspect of our lives, from arts and gaming to intellectual rights. However, there are no legal guidelines to instruct what can and cannot be NFTs, and some take advantage of such loopholes to evade legal limitations. One such incident caught the eyes of the state securities regulators in the United States last week. State regulators and Texas and Alabama ordered a virtual casino from Cyprus to stop their NFT sales.
Sand Vegas Casino Club, a virtual casino that explores the possibilities of the metaverse in gambling, was charged with illegally offering securities to its users. Sand Vegas founders Martin Schwarzberger and Finn Ruben Warnke organized the sale of 11,111 NFTs to fund the casino’s plan for integrating metaverse. This collection included Gambler and Golden Gambler times that promised buyers a portion of the casino’s annual profits. Reportedly, the casino founders offered up to 81,0000 a year for the buyers.
The state regulators soon discovered the sale and promptly issued a cease and desist order. The casino was booked for fraudulent and unregistered sale of securities through NFTs. After the Texas State Securities Board order, OpenSea, the largest NFT marketplace from Polygon, removed the Sand Vegas Casino NFTs from the market.
Still, many believe that the state or federal guidelines regarding cryptocurrencies and NFTs mostly lurk in the grey area. The interpretativeness of these guidelines often confuses those establishing their business in DeFi. This Sand Vegas Issue is strikingly similar to the famous Ripple Vs. the SEC lawsuit. The issue keeps getting more prominent as the SEC has not issued any formal guidelines on whether NFTs become securities in specific instances. Still, the small case seems to have rekindled the interest of the regulators as they are preparing to take concrete action about it.
According to Joe Rotunda, Enforcement Director at the Texas State Securities Board, the state securities regulators are expected to come together sooner or later to discuss possible solutions and commission investigations on security offerings in DeFi. We must note that this is the first time a virtual casino has received a cease and desist order from the regulators, and it proves that the government keeps a watchful eye on the activities in the crypto ecosystem. On the other hand, rug pull activities have also increased recently. A month ago, two men were arrested for defrauding $1.1 million through NFT offerings. Recently, an adult actress swindled around $1.5 million from her followers in the name of an NFT sale.