SEC Commissioners Hester M. Peirce and Mark T. Uyeda criticized the regulator’s enforcement action against the Flyfish Club non-fungible token (NFT) collection.

In a Sept. 16 letter, the commissioners argued that securities laws are not applicable in this case.

Flyfish Club, a dining establishment, sold NFT as exclusive access to a future restaurant and bar. The club created about 3,000 NFTs, selling over half at $8,400 for regular NFTs and $14,300 for Omakase NFTs, raising $14.8 million. It also earned $2.7 million in secondary sale royalties.

As a result, the SEC charged Flyfish Club with conducting an unregistered offering of crypto asset securities in the form of NFTs, settling the case with a $750,000 civil penalty and a commitment to comply with a cease-and-desist order.

The commissioners stated:

“By its very nature, Omakase dining requires a deep level of trust. Americans should be able to extend a similar trust to our regulators. Today’s settled enforcement action with Flyfish Club for its sale of non-fungible tokens (“NFTs”) is just the latest dish that undermines trust in Chef SEC. Accordingly, we dissent.”

Additionally, Peirce and Uyeda argued that these NFTs are utility tokens, not securities.

They emphasized that the Howey Test, used to check if an asset is a security, is inapt for Flyfish NFTs since their holders had reasonable expectations of obtaining in the future “wonderful culinary experiences” and other exclusive membership experiences related to Flyfish.

The commissioners warned that applying securities laws in this case could harm both the present case and future precedents and called for the SEC to provide guidance to non-securities NFT creators, allowing for experimentation without legal uncertainty.

SEC crackdown on NFTs

The SEC threatened the NFT marketplace OpenSea with a Wells Notice on Aug. 28 for allegedly offering securities on its platform.

This is an action by the US regulator that precedes an enforcement effort should the company comply and cease its operations deemed irregular.

Devin Finzer, CEO of OpenSea, claimed that the regulator’s move affects creators and artists and declared that the company would “stand up and fight.”

Following Finzer’s remarks, the Coinbase-backed organization Stand With Crypto Alliance launched the Creator Defense Fund, which is $6 million in size and aimed at protecting artists affected by the SEC enforcement act.

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