State financial regulators in Texas, Kentucky, New Jersey, and Alabama have filed a joint enforcement action against metaverse online casino company Slotie.
They accuse the operation, based in the eastern European country of Georgia, of offering non-fungible tokens (NFTs) that provide investors with ownership interests in online casinos and the right to passively share in the profits of these operations.
They believe this means Slotie NFTs is essentially offering unregulated securities.
NFTs are blockchain-based digital tokens that can represent ownership of an underlying virtual item, such as sports trading cards or even a real-world, physical work of art. Each NFT is a permanent and unique proof of title that cannot be edited, deleted, or duplicated.
Most jurisdictions don’t have legislation or regulations specifically related to NFTs, and there is uncertainty as to whether existing regulations governing crypto-assets are applicable. The US Securities and Exchange Commission is investigating NFTs, but has offered no formal guidance on whether they can be considered securities.
Cease and Desist
The state regulators have ordered Slotie to cease and desist from selling NFTs. To date, the operator has sold approximately 10K tokens to members of the public, according to the order. They did this while failing to provide purchasers with crucial information, such as the business address of the company or its founders, or a telephone number or an email address, the regulators said.
Slotie has also neglected to disclose its assets, liabilities, revenue, and other financial information related to its operations.
“The latest metaverse investment products — NFTs that purport to provide passive income — often bear significant undisclosed risks,” said Joe Rotunda, the Texas state securities board director, in a statement. “These risks are often significant and investing in virtual realities can leave investors virtually broke.”
The state regulators have ordered Slotie to immediately cease and desist from selling NFTs to investors until the security is properly registered. They face hefty fines if they ignore the order.
“State securities regulators have taken the lead in warning investors about emerging investment schemes tied to the metaverse,” the regulators said. “Although blockchain technology, digital assets, and metaverses are generating widespread public interest, bad actors are now leveraging their interests to perpetrate fraudulent schemes.”
This is not the first time state regulators have acted against a metaverse casino project selling securitized NFTs.
In July, authorities in Alabama sent cease and desist orders to Martin Schwarzberger and Finn Ruben Warnke, cofounders of Sands Vegas Casino Club. The pair were selling NFTs to fund the startup of the online casino, promising buyers a future share in the profits as “creator earnings.”
The Texas State Securities Board described the offering as “an illegal and fraudulent securities scheme.”
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