Four US states serve cease and desist orders to metaverse casino

Georgia-based metaverse casino Slotie has been served simultaneous cease and desist orders from four states in the US. The state enforcement officers of Alabama, Kentucky, Texas, and New Jersey filed the order to stop the sale of Slotie’s non-fungible tokens (NFTs) to retail investors.

The officials cited the company’s offering of unregistered securities using NFTs and the absence of state regulation as the reason for the order. NFTs are blockchain-based digital assets which designate the proprietary rights of virtual items.

This includes music, sports trading cards, virtual art, or in Slotie’s case, the ownership of a metaverse casino. Every NFT is a unique, permanent proof of title that is impossible to edit, delete, or duplicate.

Around 10,000 Slotie NFTs have already been sold to the public by the company. The tokens were developed using the Ethereum blockchain and are unique ERC-721 NFTs.

“The actions accuse Slotie of issuing 10,000 Slotie NFTs that are similar to stock and other equities. The Slotie NFTs purportedly provide investors with ownership interests in the casinos and the right to passively share in the profits of the casinos,” the Texas State Securities Board statement read.

The boards claim that the owners of the virtual casino solicited investors online, made them participate in illicit gambling activities in the Metaverse, and then scammed them. The metaverse is a digital world where players can buy products, converse with each other, and gamble.

On its website, Slotie claims its NFTs “are your ticket into the largest and fastest-growing online casino network on the blockchain”. Slotie’s tokens reportedly provide entry to the metaverse casino in addition to staking rewards, revenue split from the lotteries, games, and native token WATT.

The virtual casino began operations in October 2021 and, in Q1 of 2022, used an unknown venture capital group to raise Series A venture capital which amounted to USD $10 million.

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Slotie is also part of Sandbox, the largest available metaverse. Sandbox guests can purchase and sell NFTs as well as use the tokens as virtual casino chips when wagering on a number of casino games. Many US states’ gambling regulations deem this type of gambling illegal; hence Slotie’s cease and desist orders.

Per the orders, Slotie will halt the sale of NFTs to all the company’s investors. In order for them to be offered in the market of the four states again, the securities have to be properly registered.

If the virtual casino company fails to follow the orders, it will have to pay a penalty fine which could go as high as $10,000. Slotie currently has the option to file a hearing concerning the case in the next 31 days.

“State securities regulators have taken the lead in warning investors about emerging investment schemes tied to the metaverse,” the regulators’ statement read.

“Although blockchain technology, digital assets, and metaverses are generating widespread public interest, bad actors are now leveraging their interests to perpetrate fraudulent schemes.”

Although the company sold securitized NFTs, Slotie’s major offense, according to the order, was that it neglected to provide transparency to its customers. The investors were not provided essential information like the founder of the company, its business address, or contact details such as its email or phone number. None of these are publicly available for clients to gain access to.

Slofie was also accused of not disclosing information concerning the company’s financial situation, such as its assets, revenue, liabilities, and other details.

The filing further questions Slotie’s previous comments claiming that its first 10,000 NFTs collection was sold out in less than five minutes and its 5,000 NFTs batch was dispersed in less than two minutes. The officials stated that there was no “evidence on the blockchain” to support the claims.

“In connection with the offer, sale, or purchase of securities, Slotie is making materially false and misleading statements and/or omitting to state material facts,” the filing stated.

Joe Rotunda, the board director of Texas securities, raised awareness concerning the metaverse and its uncharted territory. He explained that although there were several legitimate firms in the virtual world, scammers and fraudsters could still use unknown tactics to swindle people out of their money.

“The latest metaverse investment products — NFTs that purport to provide passive income — often bear significant undisclosed risks,” he said

“These risks are often significant, and investing in virtual realities can leave investors virtually broke.”

The US state enforcement bodies’ pushback is in line with previous cease and desist orders earlier this year against Flamingo Casino Club, owned by Web3 gambling projects, and the Sand Vegas Casino Club.

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