crypto regulation
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The SEC is probing NFTs to see if they’re illegal token offerings

The federal agency is examining the NFT market with an eye toward regulating certain types of assets as securities.

SEC headquarters in Washington

SEC attorneys have reportedly sent out subpoenas over the past few months to demand information on potentially illegal token offerings, with a focus on fractional NFTs .

Photo: Saul Loeb/AFP via Getty Images

The U.S. Securities and Exchange Commission is homing in on creators of certain NFTs and the crypto exchanges they trade on to determine whether the digital assets are being used to raise money like traditional securities, Bloomberg reported Wednesday.

SEC attorneys have reportedly sent out subpoenas over the past few months to demand information on potentially illegal token offerings, with a focus on fractional NFTs . NFTs would be considered securities if they passed the Howey test, a standard used by the SEC to determine if there is an “investment contract" involved in a transaction.

The SEC has been hinting at this inquiry for a while. Commissioner Hester Peirce, known as “Crypto Mom” for her industry-friendly stances, said last December that some NFTs could fall under the SEC’s purview.

“Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction,” Peirce said in an interview with Coindesk TV. “People need to be thinking about potential places where NFTs might run into the securities regulatory regime.”

Chairman Gary Gensler has been vocal on regulating the digital asset industry, and has been battling the Commodity Futures Trading Commission for regulatory oversight. While the CFTC has been regulating bitcoin as a commodity, agency chair Rostin Behnam had asked the Senate for an expanded role in regulating the crypto asset industry just last month, which could put a damper on the SEC’s ambitions.

Correction: This story has been updated to correct the spelling of the names of Rostin Behnam and Hester Peirce. This story was updated March 3, 2022.

Lindsey Choo
Lindsey Choo is a former Protocol reporter covering fintech. She is a graduate of UC San Diego, where she double majored in communications and political science. She has previously covered healthcare issues for the Center for Healthy Aging and was a senior staff writer for The UCSD Guardian. She can be reached at lchoo@protocol.com.
nftseccrypto regulationcryptocurrency
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