Bloomberg: U.S. SEC Investigates NFT Creators and Market, with a Focus on Fractionalized NFTs

Bloomberg reported, according to sources, that the U.S. Securities and Exchange Commission (SEC) is reviewing NFT creators and the trading market to determine if they are being used for fundraising purposes similar to traditional securities. The enforcement division has issued subpoenas requesting relevant information.

According to sources familiar with the matter, Bloomberg reported that the U.S. Securities and Exchange Commission (SEC) is reviewing NFT creators and the trading market to determine if they are being used for fundraising purposes like traditional securities. The enforcement division has issued subpoenas seeking relevant information.

It is reported that fractional NFTs are one of the investigation targets. This form allows multiple people to own a portion of an NFT and trade it. Well-known cases include pleasrDAO's Doge meme NFT, Azuki's #40 NFT: Bob, pplpleasr's ownership of the image "White Rabbit," all of which have split the ownership of NFTs through fractional.art.

At the end of 2021, SEC Commissioner Hester Peirce had previously mentioned the potential regulation of NFTs. She stated, "Given the wide-ranging nature of NFTs, some pieces of it may fall within our jurisdiction. This is an area where investors need to be careful. I think we will see NFTs further categorized in 2022 because they are indeed valuable assets." She believes holders should evaluate whether their NFTs involve securities laws. Cryptocurrency trader Cobie takes a more aggressive stance, suggesting that all NFTs with a roadmap could potentially involve securities.

Why are businesses concerned about cryptocurrencies or NFTs being considered securities?

Securities laws are based on investor protection. For example, in the United States, issuers of securities are required to register with regulatory authorities and provide complete financial and identity information, resulting in high compliance costs. Even with exemptions from registration, there are different restrictions on investor qualifications and fundraising sizes. It is quite challenging for cryptocurrency or NFT issuers to comply with regulatory requirements in global markets one by one, especially for the crypto community that values anonymity. Furthermore, if fundraising whitepapers (commonly known as whitepapers in the crypto industry) or roadmaps in the NFT space cannot fulfill their commitments, there are legal responsibilities. Insider trading, which is common in the cryptocurrency and NFT space, also carries criminal liabilities.