The U.S. Securities and Exchange Commission is scrutinizing creators of NFTs and the crypto exchanges where they trade to determine if some of the assets run afoul of the agency’s rules, according to people familiar with the matter.
A focus of the probe is on whether certain nonfungible tokens, digital assets that can be used to denote ownership of things like a painting or sports memorabilia, are being utilized to raise money like traditional securities, said the people. Over the past several months, attorneys in the SEC’s enforcement unit have sent subpoenas demanding information about the token offerings.
The inquiry is the latest attempt by the SEC under Chair Gary Gensler to ensure the crypto market adheres to its regulations. In February, the commission and state regulators levied a record $100 million fine against BlockFi, a popular virtual-currency exchange, for failing to register products that pay customers high interest rates to lend out their digital tokens.
As part of its review, the SEC is seeking information on so-called fractional NFTs, which involve breaking down the assets into units that can be easily bought and sold, said the people, who asked not to be named as the probe hasn’t been disclosed publicly.
The SEC declined to comment. Information requests from the regulator don’t always lead to enforcement actions.
The NFT market exploded last year, drawing attention for multi-million dollar sales and buy-in from celebrities, whom some of the assets depict. In addition to serving as representations of physical collectibles, backers of the tokens often tout their value as digital certificates of authenticity that can’t be replicated.
