The US Securities and Exchange Commission is looking more closely at creators of non-fungible tokens and NFT marketplaces to see if any of the assets being sold are in violation of the agency’s rules on securities offerings.
The SEC is investigating whether some NFTs are being used to raise money like traditional securities. The SEC is looking at fractional NFTs that can be divided into segments and sold separately.
The regulator’s enforcement unit has been sending subpoenas to entities that are active in the crypto market. The subpoenas are asking for information about initial coin offerings (ICOs).
The latest development means that the SEC is continuing its drive to extend securities regulation to a share of the crypto market.
Garry Gensler, Chair of the SEC, said he wanted crypto exchanges to be registered with the regulator in October 2021. However, some lawmakers who are friendly to cryptocurrencies accused Gensler of going too far and harming the cryptocurrency industry.
To figure out if something is a security, the regulators look at the so-called Howey test which was developed by the US Supreme Court in 1946. According to this test, a product is considered a security if it is an investment of money, it is in a common enterprise, people have a reasonable expectation of making profits from it, and the profits are generated from the efforts of others. This information was gathered by the Congressional Research Service.