State Regulator Orders Online Casino to Stop Selling NFTs in Texas

State Regulator Orders Online Casino to Stop Selling NFTs in Texas

The states’ war with DeFi continues as one online casino was accused of security fraud. The state regulators in Texas and Alabama ordered Sand Vegas Casino Club to shut its NFT business. The casino is reported to have been selling securities illegally under the guise of NFTs. The casino operators went off the grid following this accusation by the Texas State Securities Board.

Sand Vegas Casino Club is an online casino operator co-founded by Martin Schwarzberger and Finn Ruben Warnke. This Cyprus-based virtual casino reportedly involved a fraudulent securities sale during a fundraiser for building virtual casinos in the emerging metaverse projects. The fundraiser, which involved 111,111 unique NFTs, is termed a “high-tech fraudulent securities offering” by the regulators. The operators seem to have misinformed the buyers about the NFTs being securities and offered them a portion of the annual profits of the casino, which roughly comes to $81,000. 

The delisting of Gambler and Golden Gambler NFTs from the market comes as the first of its kind. It also points to the continued interest of the state regulators in DeFi and the ancillary markets. DeFi enthusiasts believe that this case opens up a new portal for the US regulators to check on the emerging areas like NFTs and the metaverse. Only recently, two men were arrested for allegedly defrauding $1.1 million from NFT buyers. So, they are expected to try to clamp down on the NFT-based digital art business.

Experts also find another angle to this case as it is not the first time the regulators have made their presence visible in DeFi. Despite being a smaller incident, it has created ripples at the federal level. Enforcement Director at the Texas State Securities Joe Rotunda has confirmed that the regulators have several NFT listings that violate the terms of the US security regulators. 

And what is more, the regulators seem to be coordinating to curtail such NFTs in the market. The investigation and enforcement would soon occur once the state regulators convene to discuss this.

However, there have not been any formal clarifications from the regulators’ side concerning the violation of terms. The NFT sellers are still operating in the grey area with little knowledge about what differentiates NFTs and securities in such instances. The new NFT case is similar to the Ripple vs. the SEC on so many levels. 

Many believe that the regulators may provide clarifications soon to avoid escalating this incident to the case level mentioned above. The DeFi sector received the news pretty casually, and OpenSea, the largest NFT marketplace, removed Sand Vegas Casino Club NFT, citing that it violated their service terms.

Author: Ava Harvey