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SEC to investigates securities violations in NFT market

The SEC targets NFT inventors and markets for illicit activities with the fresh round of regulatory action against unregistered securities.

Securities and Exchange Commission (SEC) led by crypto-sceptic Chairman Gary Gensler, is investigating NFT developers and markets for securities breaches. Attorneys from the SEC’s enforcement office have allegedly issued summons requesting information on individual NFTs and other token sales. While crypto lending products have been the target of intense regulatory attention in the last year, this investigating report represents a significant step forward in probing the NFT industry. The investigation shows that the SEC is especially concerned in how fractional NFTs are used. When a more valuable NFT is tokenized and resold in smaller bits, this occurs.

The warning signals have been there for a while, with Hester Peirce, popularly known as Crypto Mom, indicating in March 2021 that selling fractionalized NFTs may be illegal. This investigation is the latest in a series of crackdowns aimed at tightening control over the cryptocurrency market. Most recently, the SEC ordered BlockFi, a crypto lending firm located in New Jersey, to pay a record $100 million penalties for failing to declare “high-yield: lending products as securities.” While Bitcoin and Ethereum have escaped scrutiny because they are not considered securities by the SEC till now. Most notably Ripple Labs, the parent company of XRP, which has been engrossed in a legal case since late 2020 for selling “unregistered securities.” 

NFT sales have increased despite the current market slump, with the top two NFT exchanges, LooksRare and OpenSea, sharing $10.7 billion in trade activity during the last 30 days.

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Vaishali Goel
Vaishali Goel
Technology enthusiast, explorer and academic scholar. Currently exploring the crypto world. Join me in my journey to see how crypto, NFT and Metaverse will change the world.


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