SEC Reportedly Targets NFT Market Over Potential Violations of Securities Law

The inquiry is looking into whether NFTs “are being utilized to raise money like traditional securities,” Bloomberg reported

by Morgan Chittum /

March 3, 2022 02:35 pm

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key takeaways

The SEC is especially seeking information on fractional NFTs
NFTs can be deemed securities if they pass the “Howey Test,” a regulatory standard used to determine if a transaction has an investment contract

The SEC is investigating NFT creators and cryptocurrency exchanges over potential violations of securities law, according to Bloomberg.

The probe is looking into whether NFTs (non-fungible tokens) “are being utilized to raise money like traditional securities,” unnamed sources told the news outlet.

The federal agency is seeking information, in particular, on fractional NFTs — cryptoassets that have been divided or securitized, allowing many investors to own a fraction.

NFTs can be deemed securities if they pass the so-called “Howey Test,” a regulatory standard used to determine if a transaction has an “investment contract,” according to the SEC.

SEC Commissioner Hester Peirce may have previously signaled an inquiry during an interview with Coindesk TV last December.

“Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction,” Peirce said. “People need to be thinking about potential places where NFTs might run into the securities regulatory regime.”

Qualifying as a security and meeting regulatory requirements, however, have been points of uncertainty for crypto startups. A class action complaint was filed last year against NFT creator Dapper Labs, alleging that some of the digital collectibles were acting as unregistered securities.

The SEC did not immediately respond to a request for comment.

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