SEC Takes Aim at Flyfish Club: $750K Fine and NFT Destruction Ordered

Between 2023 and 2024, many regulators closely monitoring the Web3 industry intensified their actions, launching widespread inspections and accusing numerous projects in the space. The activities of the U.S. Securities and Exchange Commission (SEC), one of the most well-known and influential regulatory bodies globally, are particularly noteworthy. The SEC often targets significant companies in the industry, such as Coinbase. Details about their recent clash with the regulator can be found in our previous news article titled "Crypto Chaos: Coinbase Blasts SEC for Arbitrary Actions," where we described this conflict in depth. It’s important to understand that Web3 is under close scrutiny by technical experts and government agencies, further proving the growing importance of this sector.

Today, Coinmooner wants to tell you about a new high-profile case that has again caught the SEC's attention. This case involves the Flyfish Club project, which raised $14.8 million by selling 1,600 NFTs with exclusive access to an elite club. The project became the focus of the SEC, which accused it of violating securities laws and imposed an administrative fine of $750,000. However, it's worth noting that this decision sparked mixed reactions—not all regulator members supported such harsh measures.

According to the SEC, these NFTs meet the criteria set by federal securities laws since their owners can resell the tokens at a higher price and profit from the sale. Additionally, they can earn passive income by renting out their NFTs. Based on these findings, the agency concluded that Flyfish Club violated Sections 5(a) and 5(c) of the Securities Act of 1933 because the collectible tokens were not registered as securities. As a result, the SECordered Flyfish Club will pay an administrative fine of $750,000 and destroy all NFTs in the company’s possession within ten days.

Inside the SEC's Crackdown: Why Some Commissioners Are Speaking Out Against NFT Regulations

The SEC's actions raise many questions and discussions among internet users and Web3 industry professionals, who are expressing dissatisfaction with the regulator's excessive interference in areas that are not always clearly illegal. In this situation, Coinmooner became interested in the details of the current case.

Not all SEC staff support the agency's strict measures. Commissioners Hester Peirce and Mark Ueda have criticized their colleagues' actions. They argue that the NFTs associated with the Flyfish Club project are utility tokens, not securities. In their view, these tokens are meant to provide access to exclusive dining experiences rather than for speculative investment purposes.

Peirce and Ueda are concerned that excessive SEC intervention could negatively impact NFT holders by complicating their transfer and reselling. They highlighted that NFTs are a new tool for chefs and artists to monetize their talents and offer unique experiences, which should not be subjected to overly strict legal controls. They believe such innovations should be supported rather than suppressed by overly rigid legal interpretations.

Additionally, it was revealed that the SEC threatened a lawsuit against the OpenSea platform in August. The regulator believes the collectible tokens traded on OpenSea might be considered securities. In April, the SEC warned the decentralized exchange Uniswap, claiming that UNI tokens are unregistered investment contracts.

Many experts and market participants believe the regulator's actions are unjustified. Nevertheless, the SEC can make such assumptions and draw corresponding conclusions. The Coinmooner team will continue to monitor the situation closely and keep our readers updated. We also want to remind you that in the Web3 industry, it’s crucial to use the most up-to-date security methods to ensure the safety and protection of your assets.