Unregistered NFT Offering Costs Flyfish Club $750K

The United States Securities and Exchange Commission (SEC) has reached an agreement with Flyfish Club, the entity behind a prominent NFT-based restaurant membership initiative. Under the settlement, Flyfish is required to pay $750,000 in civil penalties due to allegations of conducting an unregistered crypto asset securities offering.

Context Is Key

The filing by the SEC indicates that between August 2021 and May 2022, Flyfish engaged in an unregistered offering of crypto asset securities, selling around 1,600 non-fungible tokens (NFTs) to the public, including U.S. investors, at two different price levels.

The SEC claims Flyfish raised approximately $14.8 million between January 2022 and May 2022. This sum was generated by selling about 1,620 NFTs to the public, including U.S. investors. The NFTs were priced at 2.5 ETH and 4.25 ETH for Omakase membership, which was intended to provide exclusive access to a members-only restaurant in New York City. The SEC concluded that Flyfish offered and sold these NFTs as investment contracts, classifying them as securities under the Howey test and citing various factors supporting this classification.

Damage Control

As part of the settlement, Flyfish has agreed to meet the requirements put forth by the SEC, including destroying all NFTs in its possession within 10 days, posting a notice of the order on its website and social media platforms, and removing all links to crypto asset trading platforms through these channels.

Additionally, the company will inform secondary market trading platforms that it will not accept further royalties by Flyfish NFTs and assist the SEC staff in managing a distribution plan. While Flyfish has neither admitted nor denied the allegations, the $750,000 penalty will be paid in installments, $350,000 within 14 days of the order, $200,000 by December 31st, 2024, and the remaining $200,000 within 12 months of the order.