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SEC Targets NFT Market and NFT Creators Over Alleged Securities Violations

The US Securities and Exchange Commission (SEC) reportedly has its eyes set on the NFT market and NFT creators as it has begun a probe into the dealings happening at several NFT marketplaces which may violate regulations. According to sources familiar with the issue, the SEC is investigating whether certain NFT items constitute securities and as such should be regulated.

In a report released by Bloomberg, attorneys from the SEC’s enforcement unit, over the last few months have served several subpoenas to NFT creators alongside several crypto exchanges, requesting information pertaining to fractional NFTs, which allow multiple people to hold and trade a share of an asset. Fractional NFTs, make use of a token that can be broken down into many units sold separately.

Gary Gensler, chief of the SEC previously stated that he believes many crypto tokens are likely securities that should fall under the purview of the SEC. Hester Pierce, the commissioner, told reporters that the SEC might soon channel its focus on NFTs.

“Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction. People need to be thinking about potential places where NFTs might run into the securities regulatory regime,” Peirce stated. Peirce is widely known in the crypto scene for her pro-crypto views and opinions, earning her the nickname ‘Crypto Mom.’

The SEC’s latest probe, according to reports, is the beginning of a staunch interest in how fractional NFTs are being used. The SEC has had its sights on NFTs for a while with Hester Peirce stating back in March 2021 that selling fractionalized NFTs could be breaking the law.

“You better be careful that you’re not creating something that’s an investment product that is a security,” she said.

Pierce added that NFTs “raise the same kinds of questions that ICOs have raised” before warning investors that fractionalized NFTs could be considered unregistered securities.

The SEC’s grip on the cryptocurrency market seems to be getting tight as they recently ordered BlockFI, a New Jersey-based crypto lending firm to pay a record fine of $100 million for failing to list “high-yield” lending products as securities.

This latest probe now adds to the list of sectors that the SEC has touched. The federal agency went after initial coin offerings, or ICOs, a popular way for cryptocurrency startups to bootstrap their projects back in 2017 and 2018.

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SEC Targets NFT Market and NFT Creators Over Alleged Securities Violations