Are NFTs just ICOs in disguise? SEC finally subpoenas to find out

The SEC wants to stop NFT projects mimicking the initial coin offering boom of 2018, which saw countless illegal securities sales.

The US Securities Exchange Commission (SEC) has subpoenaed a number of non-fungible token (NFT) projects to figure out if these offerings are being used to raise capital, reports Bloomberg.

Citing sources familiar, Bloomberg says the SEC is taking a closer look at so-called “fractional NFTs.” These allow buyers to own slices of larger, more valuable digital assets.

For example, Vignesh Sundaresan (aka Metakovan) issued the B20 token linked to his NFT collection, which included a number of prized Beeple artworks.

Sundaresan advertised B20 as representative of shares in the art alongside less tangible metaverse properties like digital real estate.

The SEC is keen to watch over such projects, with chair Gary Gensler looking to stop NFTs from evolving into a proxy for a new initial coin offering boom — if it isn’t too late already.

SEC to employ Howey Test on NFT projects

The securities watchdog is also surveying the platforms that facilitate NFT trading. If NFTs are tools to fundraise for business ventures, then their sales might be securities.

But the SEC’s scrutiny of NFT markets is Gensler’s latest attempt to clean up crypto “wild west.”

The SEC in February levied a $100 million charge on crypto-bank BlockFI. BlockFi took the hit but stopped short of admitting to flogging unregistered securities while promoting potential profits. 

In the case of NFTs, the SEC will use its Howey Test to decide whether to regulate.

The Howey Test is ultimately up to interpretation. But generally, if an asset is sold under the guise of raising capital, to a buyer who expects profit due to the efforts of others, then it could be the asset should’ve been registered with the SEC.

US regulators don’t consider Bitcoin a security because it’s too decentralized for investors to profit from any one entity.

Read more: [SEC likely finds MetaKovan’s Beeple-backed crypto very ‘interesting’ — here’s why]

Ethereum-based NFTs represented about $44 billion worth of crypto value as of last year. And as Bloomberg notes, the industry is making an attempt at self-regulation while the SEC readies to strike.

In fact, some NFT trading hubs are nixing projects that might be considered securities from their platforms.

Last October, NFT marketplace OpenSea removed “DAO Turtles” for breaking its terms of service, particularly the part about “creating, listing, or buying securities, commodities, options, real estate, or debt instruments.”

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