Flyfish Club, the company behind the members-only club opening this month in Manhattan, has reached a settlement with the Securities and Exchange Commission over alleged violations.
Under the settlement agreement, Flyfish has until September 26 to “destroy all Flyfish NFTs in its possession,” stop accepting royalty payments from secondary market trading platforms on Flyfish NFT sales and pay a $750,000 civil penalty.
In 2021 and 2022, Flyfish sold memberships to its yet-to-be-built private club via non-fungible tokens (NFTs) priced between 2.5 ETH and 4.25 ETH. Approximately 1,600 NFTs were sold, generating approximately $14.8 million in gross proceeds. These funds were used to finance the construction of the Flyfish Club, a private restaurant in downtown Manhattan, according to the SEC.
“Flyfish caused investors to expect profits from the entrepreneurial and management expertise of Flyfish and its principals in building and operating the restaurant,” the SEC wrote in the settlement agreement. “Flyfish told investors that they could potentially profit from reselling their NFTs at appreciated prices on the secondary market.”
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Flyfish also told investors that “leasing” its tokens to non-members was a way to make a profit.
According to social media reports, the club will open this week on September 20. While the club’s website acknowledges that the venture originally “launched with blockchain-based memberships,” interested members can now only apply for “standard memberships.” Current NFT holders may still lease their tokens to others to access the club, the website adds.
SEC Commissioners Hester Peirce and Mark Uyeda, who have often differed from their colleagues on blockchain-related enforcement actions, issued a dissenting opinion.
“For grumpy commissioners like us, crypto enforcement feels a bit like a trip to a restaurant for a meal, Omakase style,” Peirce and Uyeda wrote, referring to the Japanese dining experience Flyfish Club plans to offer.
“Omakase means: ‘I leave it to you.’ This directive is wonderful in the hands of a renowned chef, but disastrous in the hands of a crypto-obsessed Commission,” she added.
The NFTs in question, Peirce and Uyeda argue, are not securities as their colleagues claim, but rather utility tokens. This is true even if the restaurant’s success caused NFT prices to rise, the commissioners say.
Flyfish NFT buyers did not have a “reasonable expectation of profit,” Peirce and Uyeda say, but rather a reasonable expectation of “great culinary experiences and other exclusive membership experiences.”
“The securities laws are unnecessary here, and their application is harmful, both in the current case and as a future precedent,” she added. “The Flyfish NFTs were just another way to sell memberships. Why couldn’t a chef sell memberships to eat at her kitchen table and collect royalties on the resale of those memberships?
Flyfish did not immediately return Blockworks’ request for comment.