New York restaurant Flyfish Club settles with SEC over NFTs and agrees to pay $750,000

NFT project Flyfish Club, LLC has agreed to pay $750,000 as part of the settlement it reached with the U.S. Securities and Exchange Commission on Monday.

The SEC said Flyfish "conducted an unregistered offering of crypto asset securities," when it sold 1,600 NFTs to U.S. investors, making $14.8 million in the process. The purpose of those NFTs was to fund the construction of an exclusive restaurant and bar called the "Flyfish Club" in New York City, the SEC said in a court filing on Monday.

Owning a Flyfish NFT was a way of becoming a member of the club, which could then be sold, the SEC said. The restaurant is set to open this month, according to its website.

"Flyfish led investors to expect profits from the entrepreneurial and managerial expertise of Flyfish and its principals in building and running the restaurant," the SEC said. "Flyfish told investors they could potentially profit from reselling their NFTs at appreciated prices in the secondary market."

Flyfish did not admit or deny the agency's findings. The entity agreed to also destroy all Flyfish NFTs it has in its control in the next 10 days and not accept future royalties from the sales of NFTs, according to the SEC's order. FlyFish did not immediately respond to a request for comment.

The SEC has brought a few cases against NFT projects over the past year. Its first NFT charges were lodged against podcast studio Impact Theory and later the the agency sued Stoner Cats 2 LLC for conducting an unregistered offering of NFTs that brought in $8 million from investors. More recently, NFT marketplace OpenSea said it has been given a Wells Notice by the SEC, which means the agency is planning to file an enforcement action against it.

Republican Commissioners Hester Peirce and Mark Uyeda said the SEC's settlement "undermines trust" in the SEC. Both disagreed with the SEC's assessment that Flyfish's NFTs were securities and instead said they were "utility tokens."

"While a member potentially could earn a profit by leasing or selling her token, the NFT has a concrete use: you need it to eat at the Flyfish Club," they wrote in their dissent .

FlyFish NFTs were another way to sell memberships, Peirce and Uyeda said.

"Experiments like Flyfish Club are not a threat to the American investor. Creative people should be able to experiment with NFTs without having to consult a high-priced tea-leaf reader—ahem, lawyer," they said. "The Commission can change its menu to include a healthy serving of guidance to give non-securities NFT creators the freedom to experiment."