Shutting Down Crypto Casinos Like Playing Whack-A-Mole
Alabama and Texas issued cease-and-desist orders against a company that was selling non-fungible tokens (NFTs) to operate crypto casinos in the metaverse. Sand Vegas Casino Club allegedly offered 11,111 NFT in an unregistered and allegedly fraudulent securities offering. It's difficult for governments to stay on top of them as they are able to repopulate quite easily.
The Texas State Securities Board (TSSB) nixes NFTs. The Sand and its cofounders marketed their NFSs as investment opportunities. They promised investors a return of up to $81,000 annually.
Sand Vegas casino is under construction in the metaverse. It will feature slot machines, card games, drinks and other amenities. Most online casinos still use US dollars to gamble.
"It doesn't matter if it's a catfish farm or a metaverse casino, this is a securities registration issue. If I sell you a gold mine in New Mexico and I guarantee you profit, it is securities issue."
Schwarzberger and Warnke are selling NFTs to potential buyers. They claim that NFSs are not regulated as securities, because securities laws do not apply to NTFs. Few people are crypto-literate enough to define an NF, much less determine its legality or illegality.
The debate over Bitcoin is raging. The IRS declared it a virtual currency in 2014, but in 2020, a federal court ruled that Bitcoin qualifies as money in the District of Columbia.
Cryptocurrency is not yet definitively legal or illegal. It's defined under the Unlawful Internet Gambling Enforcement Act of 2006.
The US Government would consider crypto casinos serving American customers to be operating illegally. There are other federal laws that make no reference to money that relies on a predicate violation of state gambling.
The Texas State Securities Board commissioner Travis J. Iles believes that the concept of a singular metaverse presents exciting new commercial and social opportunities.
Iles wrote in his What Happens in the Metaverse Does Not Stay in The Metaversary blog post on the TSSB site: Shutting Down Crypto Casinos Like Playing Whack-A-Mole.
Schwarzberger and Warnke want to build a virtual reality casino. The TSSB is concerned about the funding of the project. The first crypto casino was launched from Malta in 2013. Today there are several hundred that accept cryptocurrency as a payment method.
Gambler NFTs are bought by people who become owners of the metaverse casinos and share in half of their profits.
The TSSB Enforcement Division Director Joe Rotunda says that NFTs are not worth anything but how they are being used.
Sand Vegas Casino Club offered NFTs to the public, including Texas residents. N FTs conveyed ownership of metaverse casinos and the right to share in profits generated by the metaverses.
According to NFTGO, the market cap for NTFTs went from $55 million several years ago to more than $7 billion in 2021. 90% of this increase came during the last four months of 2021, when NTS became the currency du jour. OpenSea, which did around $10 billion last year, stopped selling Sand Vegas tokens because of the cease-and-desist order.
"My key goal is to make sure the public has the material information necessary to decide on investing"
The whole point of NFTs and cryptocurrency is decentralization. If Nfts operated along traditional lines, being cut off from a forum like OpenSea might have spelled the end for a venture like Sand Vegas.
"This segment has exploded in a very short amount of time. It makes it even more difficult to figure out how to go after them."
Atari opened a crypto casino in the 3D metaverse platform Decentraland last April. Flamingo Casino launched this past March and plans to open a virtual casino on the Sandbox metaversay in June. It will offer 11,111 VIP NFTs and will feature a hotel, nightclub, an arena, a movie theater, hockey team, bowling, tennis, craps, baccarat, blackjack, poker club and lottery. The casino will distribute 50% of the profits to N FT holders.
Shutting down Crypto Casinos is like playing Whack-A-Mole.
The features which make blockchain-based cryptocurrencies attractive to users are those that cause governments and regulators concern.
VIP gamblers find crypto-gambling suited to their needs. New gambling regulation seeks to obtain more personal information about gambers.
Alabama and Texas are trying to shut down crypto casinos. The states are concerned about the security of players and investors. The NASAA was founded in 1919 to protect consumers who purchase securities. They are worried about crypto casino becoming a feeding ground for exploitation by criminal elements and gambling addicts.
Alabama’s securities enforcement director calls shutting down crypto casinos like playing Whack-A-Mole.
"Cryptocurrency is still the Wild West. There are always going to be fraudsters showing up and a lag before there's regulation."
Jake Gray is a betting and futures industry consultant to operators.
There is a high potential for user-error in the current crypto casinos. The focus on anonymity means that information can be translated into restitution if you are the victim of a financial crime.
People are wary of unregulated gambling industry.
Keith Whyte, executive director of the National Council on Problem Gambling, is worried about the risk of addiction.
"Crypto gambling is just piling risk on top of risk. They are unregulated and likely to be unscrupulous operators with little or no consumer protection."
Sand Vegas' owners caught the attention of securities regulators. It's not the fact that it's a casino in itself, but the concept of what it is and how they're representing it.
The company used the wrong name for its business and failed to disclose the identity and qualifications of its employees. The Texas order summarizes that the alleged wrongdoings had to do with disclosure.
“We are absolutely confident we can solve this situation and possibly even lead the way for other NFT projects.