Flyfish Club Settlement with SEC

NFT project Flyfish Club, LLC has agreed to pay $750,000 as part of a settlement reached with the U.S. Securities and Exchange Commission (SEC) on Monday.

The SEC stated that Flyfish “conducted an unregistered offering of crypto asset securities” by selling 1,600 NFTs to U.S. investors, generating $14.8 million in revenue. These NFTs aimed to fund an exclusive restaurant and bar, the Flyfish Club, located in New York City, according to a court filing by the SEC on Monday.

Owning a Flyfish NFT granted membership to the club, which could be sold afterward, noted the SEC. The restaurant is anticipated to open this month, as per its website.

The SEC emphasized, “Flyfish led investors to expect profits from the entrepreneurial and managerial expertise of Flyfish and its principals in establishing and operating the restaurant.” It further indicated that investors were informed about potential profits from reselling their NFTs at higher prices in the secondary market.

While Flyfish did not admit or deny the SEC’s findings, it agreed to destroy all Flyfish NFTs in its possession within the next 10 days and refrain from accepting future royalties from NFT sales, per the SEC’s order. FlyFish did not quickly respond to requests for comment.

Over the past year, the SEC has initiated various cases against NFT projects. The first NFT charges targeted podcast studio Impact Theory, followed by a lawsuit against Stoner Cats 2 LLC for conducting an unregistered NFT offering that raised $8 million from investors. Recently, NFT marketplace OpenSea was informed of a Wells Notice by the SEC, indicating plans for an enforcement action against it.

Republican Commissioners Hester Peirce and Mark Uyeda criticized the SEC’s settlement, arguing it “undermines trust” in the agency. They disagreed with the SEC’s classification of Flyfish’s NFTs as securities, asserting they functioned as “utility tokens.”

They stated, “While a member potentially could earn a profit by leasing or selling her token, the NFT has a concrete use: you need it to eat at the Flyfish Club.” They further contended that the Flyfish NFTs essentially served as a membership sales mechanism.

Peirce and Uyeda advocated for creative experimentation in the NFT space, stating, “Experiments like Flyfish Club are not a threat to the American investor. Creative people should be able to experiment with NFTs without consulting a high-priced tea-leaf reader—ahem, lawyer.” They suggested that the Commission should provide a clear framework to empower non-securities NFT creators to explore their ideas freely.