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The sale of NFTs linked to a Russian metaverse casino has sparked official concern in the US – and highlighted the risks associated with such assets

Author: Syedur Rahman  20 May 2022

Regulators in five US states have issued emergency orders to force a metaverse casino with alleged Russian links to immediately halt the sale of its non-fungible tokens (NFTs).

Alabama, New Jersey, Texas, Kentucky and Wisconsin have made the orders against the Flamingo Casino Club, which began operating in Russia in March.

The regulators say the Flamingo has been seeking investors through the sale of securitised NFTs. They have also referred to allegations of fraud, deceit and registration violations and have accused the Flamingo of making efforts to conceal its Russian links; including using a fake office address, a non-functioning telephone number and disguising its real physical location.

According to an order filed by the Texas State Securities Board, the securitised NFTs give would-be investors partial ownership of the casino, a share of the profits it makes and the chance to enter into lotteries offering prizes such as electric vehicles, mobile phones and a million dollars.

Regulators have alleged that untrue claims have been made to investors that the Flamingo is associated with the legitimate Flamingo Las Vegas Hotel and Casino. Investors have also been told that their funds would help build a functioning casino and entertainment facility in the Sandbox metaverse. This, it was reported, would include a virtual stadium, hotel, cinema, bowling alley and even a virtual hockey team. Funds were to be generated through gambling in the metaverse casino.

But regulators say there is no evidence to back up the Flamingo’s operators’ claims that it is negotiating with rapper Snoop Dogg to purchase a plot in the Sandbox metaverse. They also say the operators never registered the sale of their securitised NFTs with the securities boards and have not responded to enquiries.

It is a situation that emphasises that while NFTs have their appeal, they can carry risks. With them not being subject to regulation, those who are tempted to become involved in them have little or no legal protection.

As NFTs are being used in anything from fraud and fake selling through to stealing of customer credit card details and phishing schemes, those looking to invest in them have to be aware of the pitfalls. Anyone who does not ensure they are up to speed with all the potential dangers before putting money into NFTs is taking a huge gamble.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.

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