Securities regulators in four states last week moved to stop fraudulent sales of digital assets related to gaming in online and metaverse casinos.
The Alabama Securities Commission announced Thursday it had filed a cease-and-desist order against an organization based in the country of Georgia that was selling non-fungible tokens known as Slotie NFTs. That product, as well as a secondary offering called Slotie Junior, purportedly gave investors shares in virtual gambling venues.
The order alleges that the foreign operation violated state securities laws and illegally and fraudulently sold the Slotie NFTs. The regulators accused Slotie of withholding information from investors about its assets and liabilities, anticipated use of capital and key risks associated with the NFTs and the metaverse generally.
Texas, Kentucky and New Jersey also filed cease-and-desist orders against the Slotie sponsor in Georgia, a country located on the Black Sea that borders Russia and Turkey, among other countries.
In the initial and subsequent offerings, a total of about 20,000 Sloties were sold, said Joe Rotunda, director of enforcement at the Texas State Securities Board. The NFT was priced at about $708 when it was first sold on Dec. 7. Some individual investors made thousands of dollars' worth of Slotie purchases.
Although state regulators don’t have jurisdiction in a foreign country, their cease-and-desist orders have the effect of shutting down the market for the Slotie NFTs, because websites and other platforms where they’re sold delist them after regulators intervene.
The enforcement action against the Slotie NFT is the third taken by state regulators in the last few weeks to stop illegal offerings linked to online and metaverse casinos. They also have attempted to halt offerings promoted by Flamingo Casino Club and Sand Vegas Casino Club.
The North American Securities Administrators Association issued an alert in August warning investors about the dangers lurking in the metaverse, a virtual world where users create avatars and interact and conduct business much as they would in real life.
“While we encourage new and profitable enterprise, we want investors to have all material information to enable them to make informed decisions about their investments,” Amanda Senn, deputy director of the Alabama Securities Commission, wrote in an email. “Companies operating exclusively online that are seeking to raise money from our investing public are not exempted from the law. States are hard at work ferreting out and fighting fraud.”
The challenge for regulators is that the metaverse is the shiny new online object that's drawing curious users as well as those who want to take advantage of them.
“The metaverse is a very trendy concept and it’s generating widespread public interest,” Rotunda said. “Bad actors will try to capitalize on that to perpetrate frauds. We are trying to get out in front of that.”
State regulators are probing the fake world for real scams.
“The states are continuing to take the lead in protecting the public from emerging threats, including those tied to digital assets and the metaverse,” Rotunda said.
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