TEXAS and Alabama have halted the sales of NFTs in metaverse casinos.
Securities officials from both US states cited fraud and violation of state regulations as the reasons behind the ban.
The Texas State Securities Board (TSSB) filed an Emergency Cease and Desist order that specifically mandated Cyprus-based Sand Vegas Casino Club to stop its sale of non-fungible tokens (NFTs).
Also named in the order were Sand Vegas Casino Club founders Martin Schwarzberger and Finn Ruben Warnke.
Officials noted that the emergency order was put in place to "stop an illegal and fraudulent securities scheme tied to virtual casinos – including virtual casinos in metaverses."
According to the document, the firm was reportedly building casinos in various metaverses, including on Decentraland and The Sandbox.
In order to fund their ventures, they were selling to customers more than 12,000 NFTs.
The NFTs, the order read, "entitle owners to various benefits, including a pro-rata share of profits generated by the internet and metaverse casinos."
However, the respondents are allegedly "advising purchasers that securities laws do not currently regulate NFTs and are considering further steps to obstruct the regulation of their NFTs."
In response, the TSSB has relegated the respondents' advice as "simply not true" and a "high-tech scam."
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"The parties are concealing their locations, hiding the identities of
managers, misleading potential purchasers about their experience, and obscuring the significant risks associated with investing in their NFTs," the TSSB added.
Alabama regulators joined the TSSB in filing a cease and desist order against the same respondents.
According to that document, the respondents were "devising a scheme to obstruct any attempt to regulate the NFTs".
"They are falsely telling purchasers they can avoid securities regulation by implementing illusory features or use different terminology."
Alabama Securities Commission Director Joseph Borg stated that the metaverse "provides brands with new commercial opportunities, and investors are now being exposed to the latest high-tech products."
However, he noted that bad actors are now "leveraging interest in these opportunities and products."
"Virtual reality can leave you virtually broke,” he said.
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Earlier this week, Schwarzberger, one of the founders and a respondent in the order, told Reuters that the company is complying with state regulators as well as the U.S. Securities and Exchange Commission (SEC).
“We are absolutely confident we can solve this situation and possibly even lead the way for other NFT projects,” he said.
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