• Flyfish Club raised $14.8 million by selling NFTs for an exclusive restaurant.  
  • The SEC claimed Flyfish’s NFTs were securities due to resale and leasing.  
  • Two SEC commissioners opposed the charges, arguing the NFTs offered utility, not profits.

The U.S. Securities and Exchange Commission  charged Flyfish Club for offering unregistered crypto asset securities. Flyfish raised $14.8 million from selling non-fungible tokens  to fund a private cafe task. The SEC claims the company promoted speculative ventures, leading to the charges, but two commissioners opposed the decision.

Flyfish Community sold almost 3,000 tokens, giving access to eateries in New York City. Basic NFTs cost $8,400, while Omakase NFTs with additional features cost $14,300. The SEC argued that Flyfish encouraged buying multiple NFTs to distribute or lease them, which led to classifying the NFTs as securities.

SEC Declares Violation of Securities Legislation

The securities exchange  prosecuted Flyfish under Sections 5a and 5c of the Securities Act of 1933. The law requires that instruments be legitimate or qualify for exemption, but Flyfish’s NFTs did not meet these requirements. To settle the proceedings, the club agreed to settle a $750,000 penalty and follow a cease-and-desist ruling.

While there were no allegations of Fraud, the SEC claimed that Flyfish sold these NFT memberships as unregistered securities.

In turn, they reached a settlement where the project was subject to several penalties including a $750k fine and the order to forego all royalties pic.twitter.com/7Z5cM7RkM7

— Slorg (@SlorgoftheSlugs) September 18, 2024

The SEC also noted that 42% of Flyfish investors bought more than one NFT, even though one was enough for membership. This, according to the SEC, pointed to speculative buying and selling for financial gain, which led to classifying the NFTs as securities.

Commissioners Oppose SEC’s Decision

Despite the charges, SEC Commissioners Hester Peirce and Mark Uyeda opposed the enforcement action. They argued that Flyfish’s NFTs offered utility, not investments. The NFTs were meant to provide access to dining, not for profit, so the commissioners felt the SEC’s classification was wrong.

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They also questioned the SEC’s approach to regulating the crypto space. The commissioners urged for clearer guidance instead of increasing enforcement actions against NFT projects. They worried that ongoing enforcement could harm public trust in the SEC.

Tightening Scrutiny on NFTs

This case adds to recent SEC actions against other NFT projects like Impact Theory and Stoner Cats 2. Recently, the SEC also issued a Wells Notice to OpenSea, hinting at future actions. The Flyfish situation shows the ongoing conflict between creative blockchain projects and rising regulatory oversight.

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