SEC Serves NFT Project CyberKongz With Wells Notice Citing Securities Violations

NFT collection CyberKongz says the U.S. Securities and Exchange Commission plans to bring charges against it after being asked about gaming and smart contracts over the years.  In a post on X on Monday, CyberKongz said it received a Wells Notice from the SEC — a form of communication from SEC staff that lets a firm know that the agency’s staff may recommend an enforcement action against them. 

“CyberKongz has received a Wells Notice from the SEC,” the NFT collection said in the post. “We are extremely disappointed at the approach the SEC has taken towards us, but we are going to stand up and fight for a brighter future that holds more clarity for NFT projects.” “The SEC does not comment on the existence or nonexistence of a possible investigation,” an agency spokesperson said in an emailed statement to The Block.

CyberKongz said it had “been suffering in silence” for the past two years when the SEC first contacted them. The NFT collection said the SEC’s enforcement team brought up a “very concerning rhetoric that you can not have a token (ERC-20) in tandem with a blockchain game without registering it as a security.” CyberKongz also said that the SEC showed concern over CyberKongz’s business with Genesis Kongz in April 2021, which CyberKongz said was “contact migration.”

“They cannot distinguish between a primary sale and a contract migration, what hope do we currently have for a clear regulatory pathway going forward?” CyberKongz said in the post. CyberKongz said it plans to fight for clearer regulation, specifically around NFT projects.

“It has become increasingly apparent that the current administration is trying to force their anti-crypto agenda at the last minute,’ CyberKongz said in the post. “We hope that the new administration puts an end to this unjustness on our industry, but until then we will fight for NFT projects on all chains.”

Over the past year, the SEC has brought numerous charges involving NFTs. Its first charges were lodged against podcast studio Impact Theory, and later, the agency sued Stoner Cats 2 LLC for conducting an unregistered offering of NFTs that brought in $8 million from investors. NFT marketplace OpenSea has also said it has been given a Wells Notice. 

It is unclear what happens to ongoing enforcement actions at the SEC. Current SEC Chair Gary Gensler said he plans to step down on the day of President-elect Donald Trump’s inauguration on Jan. 20. Trump has tapped former SEC Commissioner Paul Atkins to lead the SEC, who has been friendly toward crypto.