Texas Securities Sheriff Wrangles Metaverse Gamblers – Technology

Securities law enforcement recently entered the metaverse in the form of an emergency cease and desist order issued by the Texas State Securities Board against individuals and a company using NFTs to fund several metaverse casinos. Much like Wyatt Earp barging into the OK Corral, this one gets interesting.

The order alleges a fraudulent high-tech securities offering in which the respondents sought to raise capital through the offering of more than 12,000 non-fungible tokens or “NFTs” to fund the development of several virtual casinos on metaverse platforms. . These casinos would be spaces that a person could enter virtually (in avatar form) to play the types of games often found in physical casinos. In many cases, the virtual land to build the casinos had already been purchased. Respondents are also said to have developed a Web 2.0 casino available online via the Internet.

The order describes two classes of NFTs: 11,111 “Gambler” NFTs and 1,111 “Golden Gambler” NFTs. Golden Gamblers conferred rights only to Web 2.0 casino profits, while Gambler Tokens gave holders rights to profits from all casinos – both virtual and Web 2.0. The developers held 334 of the Gambler tokens for themselves. Respondents predicted that metaverse casinos would generate profits in the aggregate of US$3-60 million per month. Respondents predicted that the Web 2.0 casino would bring in between $2 million and $25 million in profits per month.

At the time of ordering, Gambler NFTs were listed on popular NFT sites for between 0.23 ETH (~$744) and 777.77 ETH (~$2.5 million). Golden Gambler NFTs were listed between 2.13 ETH (~$7,000) and 169 ETH (~$547,000). According to the cease and desist order, the respondents were heavily promoting their project and were also hacked at some point, resulting in a loss of approximately 50 ETH (~$162,000).

The order alleges securities registration violations, deception of likeness (the Web 2.0 casino was called “Sands Vegas”) and numerous other counts of deception, fraud and concealment. These allegations relate to the non-disclosure of the qualifications of the directors, the non-disclosure of the amounts of the minting royalties, the deception as to the previous experience of the casino and the lack of disclosure regarding the developers, among others.

The intersection of law, politics, and the metaverse is growing rapidly and will continue to evolve over time, as we saw earlier. Most in this space are working hard to do the right thing and convince regulators that this is not the “Wild West”. Alleged facts like this obviously do not help in this regard. Others who are active in the metaverse will want to note that regulators are already reviewing activity in this space and will likely enforce existing laws and regulations, despite the novelty in this area.

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