Securities regulators in four US states have issued cease and desist orders to Slotie Casino
Securities regulators in four US states have slammed a securitized non-fungible token operator. Elia, an iGaming and casino software company in the Republic of Georgia has been served with cease and desist orders by state securities regulators from Texas, New Jersey, Kentucky and Alabama. The orders affected the company’s Slotie NFT online casino.
Federal securities laws have not caught up with NFT or non-fungible token technology yet, and may not apply, but state regulators have been confident enough in their own laws to make this the third known NFT plot to be shut down.
The NFT casino is still up and running for international visitors, but US visitors are geoblocked by Cloudflare server technology that reads the IP address of a browser. We were able to visit the site with an IP address from Japan.
Regulators consider NFTs to be securities instruments
The site claims to have sold out all its Slotie NFTs soon after its launch in December 2021. The Tbilisi-based company was said to use the proceeds from the sale of the NFTs to fund its plans for international expansion. State regulators claim it was simply selling unlicensed securities.
The NFTs are 10,000 unique and individual avatars which looks like a mix between a robot and a slot machine. Customers who bought the NFTs were promised a share in the profits of all casinos where Sloties were placed. According to the website, the company had already entered into cooperation with 150 online casinos – but, none of these sites were listed in the company’s digital literature.
When the site was launched, it featured a section about one new token called WATTs. The explanation was short but meaningful. At some point they added a disclaimer to the description that says: “Watts are utility symbols that fuel the Slotie machines. They are NOT an investment and have NO financial value. WATT is an internal currency and 1 WATT = 1 WATT. Although you will see WATTs trading on decentralized exchange platforms, the liquidity is not provided by our team, but by random people who saw the future benefit in it.”
Regulators in New Jersey don’t seem to believe the claim that all Sloties sold out quickly. In the state’s cease and desist order, investigators said: “…there is no proof on the blockchain of 10,000 Slotie NFTs selling out in under 5 minutes.”
Normally, a provider of casino platforms will publish a list of “partners”, Elia Software on the other provides no such list on its website. Even when you present a supposed case study of a betting app tailored for the Nigerian market, no brand names are mentioned, but pictures of completely unrelated casinos are included in the “company news”.
The cease and desist orders were to be complied with by Thanksgiving. Safety commissioners in Alabama and Texas told Forbes they had not received any responses yet.
We previously reported here about two other metaverse casinos that had been served with cease and desist orders from regulators in at least two states. Emergency orders were sent in April against Sand Vegas Casino Club and in May against Flamingo Casino Club. Both operations promised a share of online casino profits to investors who bought their NFTs. One area where they ran afoul of state securities laws was by omitting information about the company, including financial statements. They also had no warning of risk required.
Although we were unable to identify any casino partners out of the 150 claimed by Elia, we were able to find one of their games in demo mode on the RubyPlay website. Ruby Play is a legitimate online slot developer licensed in Malta and dozens of games in their portfolio. The slotie avatar theme track was most likely made by RP for Elia. While the company talks about internal games, they don’t list any on the website.
Promises of shared profits for NFT holders
The order filed by the State of New Jersey quoted the following from a company announcement in November 2021: “Holding a Slotie NFT can be seen as a partnership agreement between holders, casinos and Elia Software. Casinos pay 12% of their slots revenue as a commission to us for executing and distributing high quality gaming solutions for them. We share 80% of our NFT based slot machine revenue with the Slotie owners on a monthly basis.”
With all the indicators that can be seen as red flagsnor is there anything that apparently shows that Slotie was aware of it may violate state laws by offering what the state regulators consider to be unlicensed securities. International financial instruments are usually regulated at the federal level rather than by the states.
Alabama Securities Commission Director Joseph Borg says, “...in the crypto and blockchain space, federal law is still kind of up in the air.” In addition, there has been no established case law that declares which has legal jurisdiction over the emerging NFT industry.
The question seems to arise as to what jurisdiction states should have over NFTs originating abroad. Texas State Securities Enforcement Director of Enforcement Joe Rotunda has unilaterally determined that they are securities and that his office has jurisdiction. He said, “It does not matter where the party operates from. If they enter our states and recruit our voters as part of a fraudulent scheme, we will aggressively pursue measures to protect our voters. And that applies to companies operating from the former Soviet Union that currently operate from Russia or in our backyards.”
Source: Online Casino Slotie Faces Regulator Deadline Over Questionable NFT Sales, Forbes, November 17, 2022
