The SEC’s Hester Peirce says “it could be illegal to sell fractionalized NFTs”

Hester Peirce Lawyer and SEC commissioner on NFTs
Hester Peirce Lawyer and SEC commissioner on NFTs

Hester Peirce, the Securities and Exchange Commission (SEC) ‘crypto mom’ gave some solid advice to issuers and investors. She said non-fungible tokens (NFTs) could be illegal. NFTs issuers should be careful so they don’t unintentionally create investment products while selling derivatives or fractions out of the digital collectors’ items. 

“People are being very creative in the types of NFTs they’re putting out there,” Peirce, who is an SEC commissioner and cryptocurrency supporter, said at Draper Goren Holm’s Security Token Summit on Thursday.

NFTs are made so they can be non-fungible and unique at the same time. This means there is a low chance they can be securities, Pierce added. Nonetheless, since some developers are becoming more creative when approaching NTFS, people should be careful, she said. 

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When selling fractions of individual NFTs, or NFT baskets, you better be careful you’re not creating something that’s an investment product or a security. This advice came from the so-called ‘Crypto Mom’. “The definition of security can be pretty broad,” she added.

NFTs Sell for Millions of Dollars

In the last months, non-fungible tokens have been trending among crypto enthusiasts and artists. They’ve also turned many people into millionaires overnight. NFTs are data units which can be a piece of art, a tweet, a meme, music, or even highlights from epic sports moments. For instance, Jack Dorsey’s first tweet ever was sold for $2.9 million as an NFT. Likewise, Beeple sold an NFT for about $70 million, the highest record to date for any digital art. 

Pierce argued the Howey test — which is the determinant if an asset is a security or not —isn’t well-suited for digital currencies or assets. She said the basic logic doesn’t comply with the physical assets’ system.  

The “crypto mom” explained the SEC will be considering ways on how and whether to adjust her proposed safe-harbor policy. She added she hopes she can get a chance to work with the upcoming SEC chairman Gary Gensler to solve this puzzle. 

“I don’t know how it will all play out. And again, I have a lot to learn from what’s going on in Europe, Asia, and the Caribbean. You know, there are a lot of places are taking much more forward-looking approaches than we and by ‘forward-looking’, I mean really trying to provide some clarity.”

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