Matt Robinson, writing for Bloomberg last week, reported that the SEC is taking a hard look at creators of NFTs (and crypto exchanges where they trade) to determine if securities laws are being broken.
A focus of the probe, according to Robinson, is on whether certain NFTs, digital assets that can be used to denote ownership of unique items, are being utilized to raise money like traditional securities. According to unnamed sources, Robinson said that 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.”
We appreciate John Reed Stark’s take on the matter. He spent 18 years at the SEC, the 11 of which was as its founder and chief of the Office of Internet Enforcement. Stark, in part, wrote:
SEC interest in NFTs should come as no surprise. Spending one’s life savings on a cheap looking JPEG is bonkers and soon or later the SEC was going to have to step in and stop the madness.
The NFT maniacal beany-baby-like frenzy is just another scam, orchestrated by a growing legion of con artists and crooks using the same playbook from the notorious penny stock and microcap frauds of the 80s and 90s. It’s all in plain view, even Jordan Belfort, the Wolf of Wall Street, is shilling NFT’s. You just can't make this stuff up.
I get it -- Never before has investing become so unrestricted and egalitarian. [emphasis added]. Anyone with an Internet connection can happily join the fray.
But while exciting, nostalgic (?) and certainly amusing, the gamification of digital asset investing also poses a serious threat in particular for main street investors.
Sinking hard earned cash into nascent, wildly fluctuating and wholly unregulated NFT markets, is rife with risk. The multi-billion dollar Wild West NFT marketplace creates extraordinary opportunities for theft, fraud, trickery and market manipulation.
NBA Top Shots itself acknowledges the worthlessness of NFT's in its own "Service Terms of Use," which require its users to acknowledge that NFTs “have no intrinsic value,” and not to “make any claim that alleges, in whole or in part, that any NFT has anything more than nominal value.”
The bottom line: In the NFT marketplace, market manipulation appears not only rampant and tolerated, but also encouraged. And NFT market fraud appears not only accepted and rewarded, but also taught.
Meanwhile, the cadre of starving artists who helped pump the cryptocurrency and who shelled out real U.S. dollars to pay for the minting of the NFTs “may get a few crumbs” from the undertaking, but in the end, the promoters, trading platform owners and other NFT profiteers are the ones who will typically commandeer the real profits.
To me, NFTs exist so that the crypto-fanatics can pitch the latest miraculous “get rich quick” elixir to earn real dollars from techno-neophyte investors whose idea of due diligence is a 5-minute Google search. Once the digital grifters collect the cash, there no longer exists any reason for the NFT to carry on -- except perhaps to evaporate into the ether (pun intended) that created it.
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