SEC Probes NFT Market for Possible Illegal Tokens

The U.S. Securities and Exchange Commission (SEC) is looking into the creators of NFTs to see if any of them have been breaking the agency’s rules, a report from Bloomberg said Wednesday (March 2).

NFTs, or nonfungible tokens, are unique digital assets located on the blockchain that have been sold as collectible items like artwork or sports memorabilia.

For several months the SEC has sent out subpoenas demanding information to determine if the crypto market has been adhering to its regulations.

The SEC has sought information on what is called “fractional NFTs,” which involves breaking down the asset into units that can be easily bought and sold.

NFTs have been doing well in the past year, and have drawn attention for multimillion dollar sales and buy-in from celebrities. Some of the NFTs have depicted celebrities.

One of the key legal questions is whether NFTs are securities, which would make them subject to the same rules as stocks.

In February, the commission, alongside state regulators, issued a $100 million fine against BlockFi, the virtual currency exchange, because it had not registered products that pay customers high interest rates to lend out digital tokens.

Read more: SEC’s New Top Cop: No Free Pass For Unregistered Crypto Lenders

The SEC won’t be giving crypto lending firms an easy pass for violating the law, according to a recent announcement from new enforcement director Gurbir Grewal, PYMNTS wrote.

“Our message to them is not, ‘Register your product and we’ll just ignore the billions you have under management in this crypto lending product and your violations of the securities laws,’” Grewal said, per the report. “Our message is that we’ll view their conduct more favorably if they come in — such as what the remedies will look like, including penalties, and finding a path to complying with the securities laws. That’s the benefit entities get from self-reporting violations and working with us.”