What's In Your Wallet
Slotie Faces Regulator Deadline Over NFT Sales
Consumers were entitled to a percentage of the earnings from online gambling at Slotie’s parent company, Elia Software, in exchange for purchasing 10,000 slotie, NFT that came with personalized avatars that look like the child of an eccentric slot machine and a mad robot.
Casinos despise clocks, but Slotie owns one. The former Soviet republic of Georgia’s online casino will run out of time Thursday to react to four U.S. states that effectively kicked it out of the country last month. They argued that its sales of nonfungible tokens (NFTs) to fund foreign expansion were thinly disguised unlawful securities offerings.
According to the online casino, Slotie NFTs sold out quickly on December 7, 2021. According to the cease-and-desist order issued by New Jersey, “there is no blockchain evidence of 10,000 Slotie NFTs selling out in under 5 minutes.”
According to Joe Rotunda, the Texas State Security Board’s head of enforcement, Slotie sold 300 ether and raised $1.3 million. The connected avatars are depictions of Roman legionnaires and pirates.
On Oct. 20, four states charged the business of selling unregistered securities after nearly a year.
The casino shut down its US site eight days later. Slotie has been deafeningly quiet after protesting on Twitter about “false acts and misinformation regarding Sloties” in the cease-and-desist notices and offered to meet with the SEC to resolve the situation. Its primary website, which provides investors with NFTs and casino games, is restricted in the United States but accessible worldwide.
Slotie may not have the resources to challenge the orders, but the case raises critical questions regarding state and federal attempts to exert jurisdiction over international firms, as well as how far governments will go to discourage American businessmen from investing abroad.
The four states issued their directions 28 days ago on Thursday, but an Alabama regulator said officials normally allow a few more days for email delays.
Security commissioners in Texas and Alabama said they haven’t heard from the corporation. “Missed deadlines are never a smart idea,” says Sean Griffin, a partner at Dykema Gossett.
Forbes reached out to Slotie’s social media accounts and Elia, its Tbilisi-based parent company, for a reaction. Griffin proposed three alternatives for the company:
Respond to state orders, request private hearings, or file a lawsuit against regulators.
• Do nothing; let the states try to unwind previous NFT sales and see if they can reach an agreement.
• Go off the grid, which Griffin says will be simple given the lack of knowledge about the company’s investors. Slotie could offer identical NFTs under a new name, but regulators might discover it.
Griffin describes Slotie’s reference to the SEC in his Oct. 28 tweet as “shady” and a “weird approach” to preempt state action.
Slotie was not the first international internet casino to run afoul of state regulators, but its strategy appears to be more sophisticated than those of its predecessors. In April and May of this year, two states issued emergency orders against Sand Vegas Casino Club and Flamingo Casino Club for selling NFTs and promising investors online-casino winnings without presenting financial statements or warning of investment hazards.
In the instance of Sand, regulators claimed the company flatly misrepresented to potential investors, informing them that US securities rules did not apply to NFTs and that additional attempts might be taken to thwart regulators.
After being approached by officials, Flamingo returned to Russia and Sand to Cyprus, Iceland, or Arizona. Both were tight-lipped regarding their physical whereabouts.
Elia, an online casino and gambling software provider with 120 partners and 30 slot games, established Slotie as an NFT experiment.
According to New Jersey’s decision, “holding a Slotie NFT might be regarded as a partnership contract between holders, casinos, and Elia Software. Casinos pay us a commission of 12% of their slot machine revenue in exchange for executing and selling high-quality gaming solutions for them.” On a monthly basis, we distribute 80% of our NFT-based slot machine revenue to Slotie owners.
Slotie members can participate in weekly lotteries to win cash, free spins, and new tokens. In the Sandbox metaverse, the company intends to launch a blockchain-based alternative.
Slotie appears to be unaware of federal and state securities regulations.
Normally, issues involving foreign entities are handled by the federal government, but according to Joseph Borg, director of the Alabama Securities Commission, “in the crypto and blockchain space, the federal law is still sort of up in the air,” and there is no clear definition of who has primary jurisdiction over this new industry.
The general public is interested in how federal commissions regulate NFTs and if they should be classified as securities.
“I think they’re learning,” says Jeremy Goldman, partner, and co-chair of Frankfurt Kurnit Klein & Selz’s blockchain technology group. “It would be a huge mistake, and legally incorrect, to claim that non-fungible tokens are securities. That would be terribly foolish.”
The four states appear to have ruled that Slotie’s NFTs are securities, but how much authority does a state order in the United States have over an international metaverse company?
“It doesn’t matter where the party is operating from,” says Joe Rotunda, director of enforcement for the Texas Securities and Exchange Commission. “If they come into our states and recruit our constituents as part of a fraudulent operation, we will pursue action aggressively to safeguard our constituents.” This includes companies based in the former Soviet Union, Russia, or right here in our own backyard.
Despite the fact that Slotie has blocked access to its website in the United States, residents can still purchase its NFTs through smart contracts on the Ethereum blockchain and digital wallets. Even if programmers try to prevent access from the United States, locations can be hidden by using virtual private networks, and Americans who travel abroad can simply place orders from other countries.
Slotie’s Twitter account is still active, implying that the company is still promoting to Americans who might be interested in trying out the casino tokens.
“I would advise against purchasing these unregistered Slotie NFTs,” Griffin of Dykema Gossett adds. “These restrictions are in place to protect consumers from losing money. It’s like removing your seatbelt and airbags and driving at 100 mph.”
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