US federal agency issues legal advisory on NFT investments

The United States Office of Government Ethics (OGE) issued a legal advisory recommending various instances when senior government officials are required to disclose their investments in nonfungible tokens (NFT).

In the legal advisory presented to the designated agency ethics officials, Director Emory Rounds III said that all NFT investments — both fractionalized (F-NFTs) and collectibles — worth $1,000 must be reported if “held for investment or production of income” at the end of the reporting period.

The guidance provided by the federal agency also requires reporting of NFT investments if officials made profits over $200 during the reporting period, adding that:

“Public financial disclosure filers must also disclose purchases, sales, and exchanges of collectible NFTs and F-NFTs that qualify as securities.”

The advisory primarily targets reporting of NFTs investments that represent “property,” such as real estate. However, the OGE previously ruled that personal assets, including clothing, electronics or family photos — or NFTs representing the same — are not reportable.

Based on the circumstances disclosed by each filer, collectibles may or not be required to disclose as financial investments. Director Rounds laid down seven questions to help filers self-determine their reporting requirement, as shown below.

Filers have been advised to use the OGE Form 278e for reporting NFT investments, wherein investors must include details such as the value, income type and income amount of all eligible NFTs. The OGE revealed to continue monitoring advancements in crypto and modify the above guidance as deemed necessary in the future.

Related: US lawmaker criticizes SEC enforcement director for not going after 'big fish' crypto exchanges

Congressman Brad Sherman advised the Securities and Exchange Commission (SEC) to pursue securities cases against cryptocurrency exchanges with “fortitude and courage.”

Highlighting SEC’s attempt to investigate crypto exchanges, enforcement director Gurbir Grewal referred to a case brought against Poloniex in August 2021. However, Sherman pointed out the need for pursuing investigations against bigger exchanges such as Binance and Coinbase:

“The big fish operating the major exchanges did many, many tens of thousands of transactions with XRP. You know it’s a security — that means they were illegally operating a securities exchange. They know it’s illegal because they stopped doing it, even though it was profitable. [...] I hope you focus on that.”

In tune with Sherman's request for stricter monitoring of crypto exchanges, both SEC chair Gary Gensler and Grewal cited concerns about cryptocurrency enforcement in the government department’s budget request for the 2023 fiscal year.