The Texas State Securities Board (TSSB) issued an emergency cease-and-desist order against a virtual casino firm and its two co-founders. The action was brought jointly with the Alabama Securities Commission to stop the firm from selling non-fungible tokens or NFTs.
The order accuses Sand Vegas Casino Club, Martin Schwarzberger and Finn Ruben Warnke of illegally offering NFTs to fund the development of virtual casinos in metaverses.
The order accuses the respondents of leveraging interest in metaverses to perpetrate a high-tech fraudulent securities offering. According to the order, they are offering 11,111 Gambler NFTs in connection with their development metaverse casinos in popular metaverses such as the Sandbox, Decentraland, Infinity Void, and NFT Worlds.
The respondents are accused of offering NFTs that were not registered with the Securities Commissioner in Texas. They are also not registered to sell securities in Texas.
The metaverse casinos reportedly act as real casinos except they operate in virtual worlds. Gamblers, acting through avatars, can enter the metaverse casinos and play poker and other games using cryptocurrencies. Purchasers of the Gambler NFTs profit from these operations.
Further, the respondents are allegedly developing a virtual casino, a casino accessed not through metaverses but solely through the internet. They are offering 1,111 Golden Gambler NFTs in connection with the development of this virtual casino, referred to as their web 2.0 casino. Owners of Gambler NFTs and Golden Gambler NFTs own the web 2.0 casino and share in profits generated from the web 2.0 casino.
Owners acquire Gambler NFTs and Golden Gambler NFTs through minting, a term that refers to the publication of a digital asset on a blockchain, or purchase them from listings on an online marketplace.
According to the order, the respondents are also advising followers that the Gambler NFTs and Golden Gambler NFTs are not regulated as securities, falsely claiming the securities laws do not regulate any NFTs.
They are misleading purchasers by claiming they can simply avoid securities regulation by implementing illusory features or using different terminology.
The Alabama Securities Commission also filed a contemporaneous enforcement action against the Respondents and the Kentucky Department of Financial Institutions assisted with the case.
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