Photo Credit: Samuel Corum/Bloomberg

Although the crypto community had previously criticized the US Securities and Exchange Commission's (SEC) approach to handling non-fungible tokens, the agency ignored that criticism and took action against an NFT project, and is now facing backlash within its own office.

Two US SEC Commissioners, Hester M. Peirce and Mark T. Uyeda, have slammed the agency’s cease-and-desist proceedings against an NFT project, Flyfish Club.

According to the Commissioners, Flyfish Club’s NFT collection provided membership to an exclusive dining club, considered as utility tokens, not securities. 

Additionally, the statements by the founders and NFT purchasers that a successful restaurant would cause the NFT price to rise do not change the fact that the digital asset collections are securities.

When the SEC slapped a Howey label on the NFTs for its promise of “obtaining future profits,” the commissioners claimed it was “inapt” because holders of Flyfish NFTs had a reasonable expectation of obtaining culinary experiences and other exclusive membership benefits.

Explaining why the Flyfish NFT collection should not be judged by a securities regulator, the commissioners stated:

“A well-known artist who sells a limited set of numbered prints may be selling to a couple who wants to display her art in their home, or to someone who wants to turn around and sell it for a profit and is making a bet on the artist’s future. The intent of a buyer cannot transform a non-security into a security.”

In the cease-and-desist court document, SEC accused Flyfish Club of offering “NFTs as investment contracts” but did not register the offer and sale of the digital collection with the Commission. 

The SEC ordered Flyfish to destroy all its NFTs within 10 days and to pay civil penalties totaling $750,000. 

Concluding their statements, Peirce and Uyeda said creative people such as artists, chefs, and musicians have the right to monetize their talent in a potentially efficient way. “The Commission can change its menu to include a healthy serving of guidance to give non-securities NFT creators the freedom to experiment.”

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