SEC orders crackdown on NFTs, virtual coins

MANILA, Philippines — The Securities and Exchange Commission (SEC) is cracking down anew on entities offering virtual coins or NFTs without the necessary license or authority from the agency.

In a recent advisory, the SEC said play-to-earn platform Outrace has been soliciting investments without the necessary license.

Outrace, according to the SEC, promises earnings for its players and “Outrace $Ore” token holders by acquiring its in-game NFTs or non-fungible tokens on presale through an initial coin offering at a significantly low price, on the pretext that both will increase in value once the $Ore is listed on public exchanges.

“We would again emphasize that as mentioned in our SEC advisory on Initial Coin Offerings and Virtual Currency posted on Jan. 8, 2018, an ICO is the first sale and issuance of a new virtual currency to the public usually for the purpose of raising capital for start up companies or funding independent projects,” the SEC said.

The SEC, quoting its US counterpart, said the securities law may apply to various activities, including distributed ledger technology, depending on particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale.”

Outrace is capitalizing on the current popularity of NFTs, which are now being devised by many as an investment platform, similar to conventional mediums of pooling capital by allowing users to buy, sell, and hold an array of funds or investments in the guise of in-game characters, boosters, commodities, and various digital assets and currencies.

However, Outrace is not registered with the SEC and is not authorized to solicit, accept or take investments/placements from the public nor to issue investment contracts and other forms of securities defined under Section 3 of the Securities Regulation Code in the Philippines.

The SEC said that what Outrace offers has the characteristics of a Ponzi scheme, wherein returns to early investors are likely to be paid out from the investments of new investors and not out of the companies’ profits. This is similar to those already flagged by the SEC as scams.

“Those engaged in such operations tend to close or to shut down operations once they cannot gather enough investments from new investors to fund their schemes,” the SEC said.