What Makes NFTs Securities? SEC Cases Point to Marketing

Security Enforcement Defense attorney Andrew Balthazor explained to Law360 how nuances in marketing language for non-fungible tokens (NFTs) can determine whether the sale of NFTs implicate securities laws. The article cited two recent cases of enforcement actions taken by the U.S. Securities and Exchange Commission (SEC) against two entities who promised token holders that NFTs they sold as a means to crowdsource funding for various creative projects would increase in value upon completion of the project.

"I think it underscores that you have to be careful on how you market, what is the value proposition that you're using to get people interested in the product and avoid the idea that purchasers could see an increase in value just because your efforts to produce the product are going to make the purchased product even more valuable in the secondary market," Mr. Balthazor said.

He then went on to emphasize that selling NFTs as a means of crowdsourcing funds does not always implicate securities laws, explaining "I think avoiding that language, avoiding social media posts that give that reasonable expectation of profit to purchasers will still allow creatives to raise funds for projects, even projects that haven't been realized yet, without tripping over securities laws."

READ: What Makes NFTs Securities? SEC Cases Point to Marketing (Subscription required)