The US SEC is investigating potential securities violations in the NFT market

The U.S. Securities and Exchange Commission (SEC), led by cryptocurrency skeptical chairman Gary Gensler, is investigating NFT creators and marketplaces for securities violations, Bloomberg reported.

The anonymous source in the report stated that the US SEC is investigating whether "certain non-fungible tokens ... are being used to raise funds like traditional securities."

Over the past few months, attorneys for the U.S. SEC’s Enforcement Division have reportedly issued subpoenas seeking information on specific NFT and other token offerings.

While crypto lending products have been the subject of intense scrutiny by regulators over the past year, the report marks an important step in the investigation into the NFT space. The investigation revealed that the US SEC is particularly interested in how fragmented NFTs are used. Fragmented NFT is to convert more valuable NFT tokens into smaller parts and sell them.

The warning signs are already clear, with Hester Peirce, known as the crypto mom, saying as early as March 2021 that selling fragmented NFTs may violate the law.

"You better be careful what you're creating isn't an investment product — it's a security."

The investigation is the latest in a wave of crackdowns aimed at more firmly governing the cryptocurrency market. Most recently, the U.S. SEC ordered New Jersey-based crypto lending firm BlockFi to pay a record $100 million fine for failing to list a “high-yield: lending product as a security.”

Since Bitcoin and Ethereum are not considered securities by the US SEC (at least not yet), they have been able to avoid scrutiny, but other digital assets have not enjoyed the same reprieve, most notably XRP parent company Ripple Labs. The company has been embroiled in a legal case since late 2020 over the sale of "unregistered securities."

NFT sales continue to grow, defying the current market decline — the two largest NFT exchanges, LooksRare and OpenSea, have collectively seen $10.7 billion in trading volume over the past 30 days.

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