The SEC Deemed Your NFT a Security. Now What?

Last Thursday, three individuals were charged with insider trading in an enforcement action by the Securities and Exchange Commission (SEC). What makes this enforcement action unique is that for the first time, the Commission has determined that a crypto asset, previously treated as a commodity, should now be handled as a "Crypto Asset Security." This recategorizing means that the full complex of securities regulations applies to current and future issuers of existing digital assets, tokens, or NFTs. But what if you've already issued these tokens? What can you do to bring your securities into compliance?

As many followers of this asset class will recall, we've been here before. In July 2017, the SEC issued its DAO Report of Investigation. The SEC cautioned that initial coin offerings ("ICOs") could be securities offerings. In 2018 people were raising funds through ICOs. On November 16, 2018, the Securities and Exchange Commission announced settlements with two companies that had raised funds through such offerings.

The path forward for NFT issuers requires understanding the regulatory framework and taking steps to ensure compliance with securities laws.