Dilendorf Law Firm PLLC’s lawyers say the SEC may treat some NFT tokens as securities.
Security or commodity: lawyers question the nature of NFT
The US Securities and Markets Commission became interested in the non-fungible token (NFT) industry, as the market grew by 300%, and well-known brands, celebrities and ordinary users began to massively buy new assets.
Now token holders and investors are concerned about the legal issue of NFT token circulation, namely: will the SEC treat these assets as a security, or will the tokens be classified as goods. Lawyers still find it difficult to answer this question, but it is possible that some tokens will still fall under the securities law.
“Not all NFTs will be considered securities by US regulators, but it is possible that some NFTs will indeed fall within this definition. If the NFT is connected to a unique digital art / collectible / game and has a Certificate of Authenticity, then the NFT is unlikely to be considered a security. However, if NFTs are offered to the general public with the promise of liquidity and the continuation of the issuer’s services, increasing the value of the asset, such NFTs can be regarded as an investment contract and, accordingly, a security, ”explained Dilendorf Law Firm PLLC.
At the same time, the director of the corporate finance department of the SEC, William H. Hinman, assures that some NFT-tokens “with a certain consumer value” can really be considered as securities.
“If NFTs are sold to the general public with the promise of instant liquidity or returns, they will look more like a speculative investment than a digital collectible and will be treated like a security,” said an SEC spokesman.
Another condition for classifying an NFT token as a securities will be the issuer’s policy. As experts explain, if an NFT issuer creates and influences the NFT secondary market or provides other services designed to increase the value of the NFT, the token can be considered a security.
The expected return will then depend more on the management efforts of the issuer, promoter, or NFT marketplace than on the open market for digital collectibles and other similar NFTs. Thus, the basic nature of such a transaction is more like a security than a digital collectible.
“In addition, any mislabeled and non-compliant NFT projects may be found to violate the anti-fraud provisions of securities laws and may be subject to civil and criminal liability if found to be misleading to investors,” the experts explain.
Note that the SEC considers the tokens of ICO projects in a similar way, which can be qualified as securities. For example, the SEC is currently in litigation with Ripple, accusing the issuer of illegally selling XRP securities.
NFT tokens are more expensive than bitcoin
Such attention to non-fungible tokens on the part of the US authorities is quite predictable. After some NFTs were sold for record amounts tens of times the value of bitcoin, SEC officials immediately turned their attention to these assets.
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