Flyfish Club Settles With SEC Over NFT Violations

According to Blockworks, Flyfish Club, the company behind the exclusive members-only club set to open in Manhattan, has reached a settlement with the Securities and Exchange Commission (SEC) over alleged violations. As part of the settlement, Flyfish must destroy all Flyfish NFTs in its possession by September 26, cease accepting royalty payments from secondary market trading platforms on Flyfish NFT sales, and pay a civil penalty of $750,000. In 2021 and 2022, Flyfish sold memberships to its private club through non-fungible tokens (NFTs) priced between 2.5 ETH and 4.25 ETH. Approximately 1,600 NFTs were sold, generating around $14.8 million in gross proceeds. These funds were used to finance the construction of the Flyfish Club, a private restaurant in downtown Manhattan. The SEC noted that Flyfish led investors to expect profits from the entrepreneurial and managerial expertise of Flyfish and its principals in building and running the restaurant. Investors were also told they could potentially profit from reselling their NFTs at appreciated prices in the secondary market. Flyfish also informed investors that leasing out its tokens to non-members was a way to make a profit. The club is scheduled to open this week on September 20, according to social media posts. While the club’s website acknowledges that the venture originally launched with blockchain-based memberships, interested members may now only apply for standard memberships. Current NFT holders are still allowed to lease their tokens to others to gain access to the club, the website adds. SEC Commissioners Hester Peirce and Mark Uyeda issued a dissenting opinion, arguing that the NFTs in question are not securities but rather utility tokens. They stated that Flyfish NFT purchasers did not have a reasonable expectation of profit but rather a reasonable expectation of wonderful culinary experiences and other exclusive membership experiences. Peirce and Uyeda added that the securities laws are not needed in this case and their application is harmful both in the present case and as future precedent. They argued that the Flyfish NFTs were simply a different way to sell memberships and questioned why a chef should not be able to sell memberships to eat at her kitchen table and collect royalties on resales of those memberships. Flyfish did not immediately return Blockworks’ request for comment.