Flyfish Club Settles SEC Charges Over Unregistered NFT Sales, Agrees to Destroy All Flyfish NFTs

• Flyfish Club, an NFT project, has settled with the U.S. Securities and Exchange Commission (SEC) by agreeing to pay $750,000.
• The SEC claimed that Flyfish Club performed an unregistered offering of crypto asset securities.
• Notably, Flyfish Club raised $14.8 million through the sale of 1,600 NFTs to fund an exclusive restaurant and bar in New York City.

Flyfish Club Fined $750,000 by SEC for Unregistered NFT Offering

SEC Charges Flyfish Club with Unregistered Securities Offering

The SEC has charged Flyfish Club, LLC, with conducting an unregistered offering of crypto asset securities via the sale of non-fungible tokens (NFTs). Flyfish sold 1,600 NFTs to U.S. investors, generating $14.8 million to finance an exclusive restaurant and bar named the “Flyfish Club” set to open in New York City. The SEC noted that these NFTs were marketed as membership passes that could be later resold for potential profit, thus classifying them as securities.

Regulatory Response and Settlement

The SEC’s settlement requires Flyfish Club to pay $750,000 without admitting or denying the agency’s findings. Additionally, the company has agreed to destroy all remaining NFTs in its control within 10 days and will not accept any future royalties from NFT sales. Flyfish Club’s case follows a series of SEC actions against other NFT projects, indicating the regulator’s increased scrutiny in this space.

Internal Dissent Within the SEC

The settlement has caused friction within the SEC, with Commissioners Hester Peirce and Mark Uyeda expressing dissent. They argued that Flyfish’s NFTs should be considered utility tokens rather than securities, citing their specific use for membership access to the restaurant. Peirce and Uyeda stressed that creative ventures like Flyfish should not require extensive legal consultations to innovate and experiment with NFTs.

Context of SEC’s Broadening NFT Regulation

This development forms part of a broader trend in which the SEC is cracking down on unregistered cryptocurrency and NFT offerings. Previous actions include charges against Impact Theory and Stoner Cats 2 LLC, both for similar violations. Recently, NFT marketplace OpenSea was also issued a Wells Notice, signaling potential enforcement action by the SEC.

Conclusion

The SEC’s case against Flyfish Club underscores the growing regulatory challenges faced by NFT projects, especially those involving significant financial transactions. The internal dissent within the SEC further adds complexity to how NFTs are classified and regulated. As the regulatory landscape evolves, NFT innovators will need to tread carefully, ensuring compliance while pushing the boundaries of what’s possible in the digital asset space.