Flyfish Club, an exclusive members-only restaurant based on non-fungible tokens (NFTs), has settled with the U.S. Securities and Exchange Commission (SEC) over allegations of offering unregistered securities.
The restaurant, set to open this month, agreed to a settlement that includes paying a $750,000 civil penalty and complying with “certain undertakings.”
The settlement stems from accusations that Flyfish sold NFTs that did not meet exemption requirements from SEC registration.
According to the SEC order, the restaurant raised nearly $15 million between August 2021 and May 2022 by selling approximately 1,600 NFTs to investors.
The SEC argued that the restaurant promoted these NFTs as an “investment” tied to the restaurant’s future success. This messaging reportedly led 42% of the buyers to purchase more than one NFT, although only one was needed for club membership.
At launch, the starting price for Flyfish NFTs was set at 2.5 ETH, which equaled around $8,200 at the time. Based on OpenSea’s analytics, the Flyfish NFT collection has since reached a total trading volume of 10,380 ETH, or over $24 million. The current floor price for a Flyfish NFT is around 1.29 ETH, or approximately $3,000, with about 1,297 unique owners.
Despite the legal issue, the restaurant’s plans to open haven’t been derailed. Flyfish is scheduled to open this Friday in Manhattan’s Lower East Side. “The wait is almost over,” reads an Instagram post shared by the restaurant on September 16.
The restaurant is being launched by the VCR Group, which includes well-known entrepreneur Gary Vaynerchuk, aka Gary Vee. According to Flyfish’s website, NFT holders will enjoy “private access to a variety of curated areas, rooted in elevated dining and social experiences.”
Flyfish’s case is part of a broader trend of NFT-related companies facing scrutiny from the SEC. In June, Dapper Labs settled a lawsuit over NBA Top Shot NFTs for $4 million. Similarly, OpenSea, a major NFT marketplace, recently received a Wells notice from the SEC, which sparked concerns across the NFT industry.
The Digital Chamber, a U.S.-based blockchain advocacy group, responded by urging Congress to classify certain NFTs as consumer goods rather than securities.
In response to growing regulatory pressure, Coinbase recently launched a $6 million legal defense fund for NFT creators. The initiative, created in partnership with OpenSea, venture capital firm a16zcrypto, and various law firms, aims to provide free legal support to NFT creators facing SEC enforcement actions.
