SEC Commissioners Criticize SEC Over Treatment of Flyfish Club
U.S. Securities and Exchange (SEC) Commissioners Hester Peirce and Mark Uyeda have criticized the SEC for their handling of cases involving NFTs, specifically citing their recent treatment of Flyfish Club, LLC.
Flyfish Club, a high-end restaurant chain, recently settled with the SEC after selling NFTs in 2021 and 2022 to provide exclusive access to a yet-to-be-built restaurant and bar for its members.
As part of the settlement, Flyfish Club agreed to destroy all NFTs in its possession, pay a civil penalty of $750,000, and cease collecting royalties from secondary market sales of the NFTs.
The project, which was backed by online entrepreneur Gary Vaynerchuk, is set to open its first restaurant in New York’s Upper East Side this week after generating $14.8 million in proceeds from the sale of approximately 3,000 NFTs.
The SEC’s judgment did not accuse Flyfish Club of fraud but rather of failing to register their NFT collection as securities. The SEC argued that by suggesting buyers could potentially profit from the NFTs, they should have been registered as securities.
However, Commissioners Peirce and Uyeda believe the SEC is being too aggressive in applying securities laws to NFTs. They argue that the Flyfish NFTs were simply a unique way of selling memberships and should not be subject to securities regulations.
The Commissioners questioned why a chef, for example, should not be able to sell memberships to dine at their kitchen table and earn royalties from resale, stating that these types of creative endeavors are not a threat to investors.
They expressed support for artists and chefs to explore new ways of monetizing their work and criticized the SEC for stifling innovation in the space.
Edited by Stacy Elliott.