Days before opening, Flyfish Club, the exclusive Manhattan members-only venue, has reached a settlement with the Securities and Exchange Commission (SEC), agreeing to pay a $750K fine. This settlement marks a significant moment for Flyfish Club as it prepares to launch, addressing the alleged violations related to its non-fungible tokens (NFTs).
As part of the settlement agreement, Flyfish Club must comply by September 26 to “destroy all Flyfish NFTs in its possession,” halt the acceptance of royalty payments from secondary market trading platforms on Flyfish NFT sales, and pay a civil penalty of $750,000.
Flyfish Club’s Blockchain-Based Memberships Under Scrutiny
In 2021 and 2022, Flyfish Club sold memberships through NFTs priced between 2.5 ETH and 4.25 ETH, raising approximately $14.8 million. These funds financed the construction of its private restaurant in Manhattan. The SEC claimed that Flyfish led investors to anticipate profits from the club’s operational success and the resale value of their NFTs. According to the settlement agreement, investors were encouraged to expect returns from the entrepreneurial efforts of Flyfish and its management.
NFTs, Expectations, and Controversy
The SEC noted that Flyfish also communicated to investors that “leasing” out its tokens could be profitable. The club, which is set to open on September 20, acknowledged via social media posts that it initially “launched with blockchain-based memberships.” While current NFT holders can still lease their tokens, future memberships are now processed as “standard memberships” through their website.
Notably, not all SEC Commissioners agreed with the enforcement action. Commissioners Hester Peirce and Mark Uyeda issued a dissenting opinion, comparing the situation to an Omakase dining experience, which Flyfish Club plans to offer. They argued that the Flyfish NFTs were utility tokens, not securities. The commissioners emphasized that the NFTs were a unique way of selling club memberships rather than investment contracts, arguing against the application of securities laws in this context.
Future Implications
Peirce and Uyeda contended that Flyfish NFT purchasers did not anticipate financial returns but rather expected “wonderful culinary experiences and other exclusive membership experiences.” They further argued that applying securities laws in this instance and future similar cases might be harmful, suggesting that a chef should be able to sell memberships and collect royalties without such regulatory interference.
Flyfish Club has yet to respond to Blockworks’ request for comments on the settlement.
Read more: The SEC continues to engage in ‘strategic ambiguity,’ lawyer says
As Flyfish Club prepares for its grand opening, the spotlight remains on how this settlement will impact their innovative membership approach and the broader implications for NFT-based ventures in the future.
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