State securities regulators order virtual casino firm to stop selling NFTs

WASHINGTON Reuters – Securities regulators in the U.S. states of Texas and Alabama on Wednesday ordered an online casino developer to stop selling nonfungible tokens NFTs, alleging the firm was illegally offering unregistered securities and defrauding the public.

Cyprusbased Sand Vegas Casino Club and cofounders Martin Schwarzberger and Finn Ruben Warnke allegedly offered 11,111 NFTs in a “hightech fraudulent securities offering” to fundraise to build virtual casinos in the metaverse. They also erroneously told potential buyers the tokens were not securities, the Texas State Securities Board said in a statement.

Sand Vegas promised buyers of its Gambler and Golden Gambler NFTs they would share in virtual casino profits, forecasting proceeds of as much as 81,000 each year, the regulators said.

Sand Vegas and the cofounders could not be reached immediately for comment.

The ceaseanddesist order appears to be the first of its kind tied to internetbased virtual environment platforms, colloquially known as the metaverse. It also marks a new frontier for U.S. authorities seeking to clamp down on NFTs, blockchainbased tokens that represent assets such as a piece of digital art. Last month, two men were arrested and charged with scamming NFT buyers worth 1.1 million.

Though this latest case is relatively small, state actions often spark interest from federal regulators. NFTs have seen a surge in investor interest, and the Securities and Exchange Commission SEC has not yet offered formal guidance on whether they could be considered securities in some instances.

OpenSea, the largest NFT marketplace, has listed Sand Vegas tokens, Wednesdays order said. OpenSea did not respond immediately to request for comment.

Joe Rotunda, enforcement director at the Texas State Securities Board, said the regulator has spotted a number of securities offerings in the metaverse.

“This is a hot area,” he told Reuters. “We are coordinating among states to investigate the offerings and plan enforcement actions if necessary.”