The Digital Chamber of Commerce is actively seeking support from US crypto users for a new bill. This bill aims to classify certain non-fungible token (NFT) projects as consumer products, thereby preventing the misapplication of securities laws.
The group urged Congress to consider legislation that would distinguish NFTs based on their intended use, freeing many from federal law’s treatment as securities. US Representative William Timmons introduced the bill in question, known as the New Frontiers in Technology Act (NFT Act).
What the NFT Act Covers
The NFT Act would label certain NFTs as “covered NFTs.” These are items that function primarily as collectibles, works of art, musical compositions, or other forms of intellectual property.
The bill recognizes these digital collectibles, such as virtual land, in-game assets, and digital merchandise, as consumer products. However, the legislation is clear that NFTs marketed or sold with the expectation of financial gain, or those promoting investment potential, would still fall under securities regulations.
The Call for Support
The Digital Chamber is urging US crypto users to contact their local government representatives and get their support for the NFT Act. The organization believes that this distinction is necessary to ensure the continued development of NFT technology in the US without unnecessary regulatory hurdles.
According to the group, the improper classification of digital collectibles as securities could stifle innovation and force companies to relocate to more crypto-friendly jurisdictions. In its official statement, the group stated that supporting the Act would promote ongoing technological innovation, enhance consumer protection, and establish a solid foundation for blockchain technology within the United States.
SEC’s Increased Focus on NFT Projects
The introduction of the NFT Act came at a time when the Securities and Exchange Commission (SEC) was paying more attention to the NFT space. Last month, the SEC issued a Wells notice to OpenSea, one of the largest NFT marketplaces.
A Wells notice signals that the SEC is considering enforcement action for potential securities law violations. More recently, the SEC fined restaurant group Flyfish Club $750,000 for selling NFTs, which the SEC argued functioned as unregistered securities.
SEC Commissioners Hester Peirce and Mark Uyeda criticized this enforcement action. They noted that the NFTs in question were simply a means of selling memberships rather than investment products.
The NFT Act also mandates the U.S. Comptroller General to carry out a study on NFTs once the bill is enacted. This study would explore the economic and legal implications of NFTs, offering Congress more data to craft future regulations.
SEC Commissioners Criticize Flyfish Club NFT Settlement
Meanwhile, US SEC commissioners Hester Peirce and Mark Uyeda have expressed their disapproval of the regulator’s management of a $750,000 settlement with Flyfish Club, a restaurant that sold NFTs providing membership access.
The SEC claimed the Flyfish Club’s NFTs violated securities laws, alleging they were unregistered crypto asset securities under the Howey Test. Flyfish Club sold 1,600 NFTs, raising $14.8 million, according to a cease-and-desist order issued by the SEC.
The NFTs allowed holders access to the yet-to-open Flyfish Club restaurant in New York City. However, the SEC viewed these tokens as investment contracts, subject to securities registration requirements.
An Unnecessary Enforcement Action
In their letter, Peirce and Uyeda said the enforcement action unnecessarily targeted innovation and didn’t address any real harm to investors. The commissioners also criticized the SEC’s approach to NFT regulation, saying it failed to provide clear guidelines for NFT creators.
They warned that this type of enforcement could stifle creativity in the NFT space. The commissioners expressed that creative individuals should have the freedom to explore NFTs without the need to consult an expensive lawyer.
Gary Vaynerchuk, a prominent entrepreneur in the NFT space, launched the Flyfish Club NFTs. These NFTs allowed buyers access to the exclusive members-only restaurant, which will offer dining and social experiences once it opens in Manhattan.
Flyfish Agrees to Destroy Remaining NFTs
Meanwhile, Flyfish Club has settled with the SEC without admitting or denying the charges, agreeing to destroy any remaining NFTs and forgo future royalties from NFT sales. This action mirrors other enforcement measures the SEC has taken against NFT projects in recent months.
Recently, the SEC charged Impact Theory and Stoner Cats 2 over alleged violations involving unregistered securities offerings, further intensifying the regulatory pressure on the NFT industry.
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