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The Texas State Securities Board (TSSB) and Alabama Securities Commission (ASC) have taken enforcement action against a firm selling NFTs to fund the development of virtual casinos in the metaverse.

Martin Schwarzberger and Finn Ruben Warnke, founders of the Sands Vegas Casino Club (SVCC – not associated with land-based casino operator Las Vegas Sands) are accused of illegally offering NFTs in Texas and Alabama, in what the TSSB described as “a high-tech fraudulent investment scheme”.

The TSSB has issued the duo with an emergency cease and desist order.

SVCC is offering 11,111 Gambler NFTs and 1,111 Golden Gambler NFTs for sale. According to the firm’s website, the proceeds from these will be used to fund the creation of one of the largest online casinos in the Sandbox and Decentraland metaverse, among others, as well as the creation of a cryptocurrency-led online casino.

TSSB enforcement director Joe Rotunda: “Bad actors are now leveraging interest in these opportunities and products. Virtual reality can leave you virtually broke.”

Prices for the NFTs vary between 0.23 Ether (around $700) and 777.77 Ether ($2.4m), according to the TSSB.

SVCC’s marketing materials claim that every Gambler NFT holder will automatically be entered into a profit-share programme, which will see 50% of the virtual casino’s profits distributed among holders of the digital assets.

The set-up could earn NFT holders as much as $6,750 per NFT per month, according to the SVCC, which is targeting potential buyers through a digital marketing campaign.

According to the TSSB, SVCC has falsely claimed that the NFTs are not regulated as securities in Texas, and is also misleading purchasers by claiming they can avoid securities regulation by “implementing illusory features or using different terminology.”

Gamblers, acting through avatars, can enter metaverse casinos and play poker and other real-gambling games using cryptocurrencies.

The TSSB said purchasers of the Gambler NFTs were told they would profit from these metaverse casino operations.

By entering into the agreement via NFT purchase, they would become part-owners in the casinos, but also share in the profits generated from gambling and from the sale of digital assets representing virtual drinks and cigarettes.

TSSB enforcement director Joe Rotunda said: “The metaverse provides brands with new commercial opportunities, and many investors are now considering the latest high-tech products.

“However, bad actors are now leveraging interest in these opportunities and products. Virtual reality can leave you virtually broke.

“Purchasers of any investment – from the traditional stocks and equities to the latest product – need to consider all factors, not just marketing campaigns designed to recruit purchasers,” he added. 

Rotunda has served in the role since 2007 and is a former Travis County assistant district attorney.

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