Texas regulators order virtual casino to stop selling NFTs

Published at: April 14, 2022

A virtual, Cyprus-registered casino Sand Vegas Casino Club faced an emergency cease and desist order from Texas and Alabama state securities regulators. The company is ordered to “stop a fraudulent investment scheme tied to metaverses”. 

On April 13, the Texas State Securities Board reported issuing the order, accusing Sand Vegas Casino Club, Martin Schwarzberger and Finn Ruben Warnke of illegally offering nonfungible tokens (NFTs) to fund the development of virtual casinos in metaverses.

Allegedly, Sand Vegas offered 11,111 NFTs to raise funds for its metaverse casinos. The firm offered those who purchased Gambler NFTs and Golden Gambler NFTs a share of the future casino’s profits. By Sand Vegas' projections, owners of Gambler NFTs could expect profits between $1,224 and $24,480 per NFT annually, and Golden Gambler NFTs holders would earn between $6,480 and $81,000 per NFT over the same period.

By April 9, the listing price for Gambler NFTs was between 0.23 ETH (around $744.38) and 777.77 ETH ($2.5 million), while the listing price for Golden Gambler NFTs was between 2.13 ETH ($6,793) and 169 ETH ($547,000).

According to the order, the respondents claimed their NFT offerings were not securities and thus did not fall under securities laws. The document specified:

“The Respondents are also devising a scheme to obstruct any attempt to regulate the Gambler NFTs and Golden Gambler NFTs [...] They are misleading purchasers by claiming they can simply avoid securities regulation by implementing illusory features or using different terminology.”

Related: SEC investigating NFT market over potential securities violations

Sand Vegas is not registered to sell securities in Texas and Alabama, and hence it is not allowed to proceed with its NFT sales. It appears that the Texan regulators’ initiative could kick off a larger trend as well. As Joe Rotunda, enforcement director at the Texas State Securities Board, has told journalists, his agency is coordinating across state lines to investigate similar offerings and plan enforcement actions in the “hot area” of NFTs.

Tags
Regulation
United States
Bitcoin Regulation
Texas
Law
Cointelegraph Nft
Usa
Related Posts
Texas chases after Wyoming with crypto law proposal, but challenges remain
Everything is bigger in Texas, but when it comes to crypto-friendly legislation, this doesn’t seem to be the case… just yet. On March 12, 2021, Texas Representative Tan Parker introduced the Uniform Commercial Code, also known as UCC, amendment bill (House Bill 4474) to better adapt commercial law to blockchain innovation and digital asset regulations. Specifically speaking, the Texas UCC amendment bill aims to recognize virtual currencies under commercial law. Lee Bratcher, president of the Texas Blockchain Council — an organization recently established as a trade association intended to make Texas a leader in national blockchain growth — told Cointelegraph …
Blockchain / March 25, 2021
US Federal deposit insurer lists “crypto-asset risks” among its top priorities for the year
Martin J. Gruenberg, the acting chairman of the Federal Deposit Insurance Corporation, or FDIC, named “crypto-assets” among the agency’s key priorities in 2022, alongside addressing financial risks associated with climate change and promoting amendments to major federal statutes relevant to FDIC’s jurisdiction. A Feb. 7 statement outlines five key areas that the agency deems most important for its mission of maintaining public confidence in the U.S. financial system. Number four on the list is evaluating “crypto-asset risks.” Acknowledging the rapid pace with which digital asset-based products are becoming part of the financial landscape, the statement emphasizes systemic risks that this …
Regulation / Feb. 7, 2022
Biden's anemic crypto framework isn't what we need
The long-awaited cryptocurrency regulation framework released by President Joe Biden’s Treasury Department this month attempted to outline a plan for managing the burgeoning crypto industry. Unfortunately, the department’s assessment failed to embody more substance than a mere mission statement. While Biden’s administration appears to be taking a “whole-of-government approach” toward overseeing the decentralized finance (DeFi) sector and its ripple effects on the traditional economy, they are focused predominantly on defending against negative events — such as financial crime — and failing to facilitate positive events, such as the wealth-building opportunities that crypto offers to Americans excluded from the traditional big-banking …
Regulation / Sept. 24, 2022
Crypto needs to self-regulate before governments crack down
Self-regulation will be critical in governing the rapidly changing landscape of the cryptocurrency industry in order to preserve its autonomous, decentralized nature. Months after the collapse of the Terra ecosystem that propelled crypto’s market capitalization below $1 trillion, the industry is beginning the long process of rebuilding not only retail trust but also faith in itself. Current market conditions are in part due to structural weaknesses in smart contracts, models and governance processes. This is made evident by the many hacks and exploits that have taken place this year and the ballooning of projects with flawed tokenomics and that are …
Technology / Oct. 20, 2022
My story of telling the SEC ‘I told you so’ on FTX
“I hate to say I told you so” is a phrase oft-repeated but rarely sincere. It’s a delightful feeling to claim credit for warning about a problem in advance. That’s a liberty I’m taking with federal financial regulators at the United States Securities and Exchange Commission. In January of this year, while serving as a member of the SEC Investor Advisory Committee that advises SEC Chairman Gary Gensler on crypto and other matters, I filed a petition with the SEC. I asked them to open a formal public comment about unique issues presented by crypto and other digital assets. I …
Regulation / Nov. 21, 2022