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New Jersey Bureau of Securities takes action to prevent Russian scammers from committing NFT investment fraud

New Jersey

Acting Attorney General Matthew J. Platkin and the Consumer Affairs Division announced today that the New Jersey Bureau of Securities has issued a summary cease and desist order requiring a Russian website operator to cease to offer secure non-fungible tokens (secure NFTs) in violation of New Jersey law – an action taken in coordination with four other state securities regulators.

Securitized fraudulent NFTs allegedly convey ownership and the right to share the profits of a “metaverse” casino.

The subject of the order, Flamingo Casino Club (Flamingo), operates on the Internet through its website and social media presence on YouTube, Instagram, Twitter, Telegram and Discord.

The Flamingo website was purchased and paid for from an IP address in Russia in March 2022.

The Bureau found that Flamingo made numerous misrepresentations and omissions of material facts.

For example, Flamingo did not disclose its location to potential investors in its securitized NFTs and provided falsified information to secure web hosting services.

Specifically, Flamingo provided the web hosting service with a fake address in Rochester, New York, a zip code in Florida, and a phone number that is not in service.

In addition to New Jersey, the Flamingo investigation announced today is in coordination with financial and securities regulators representing Alabama, Kentucky, Texas and Wisconsin.

According to the order issued in New Jersey today, Flamingo purports to offer and sell the securitized NFTs in order to raise capital to develop a virtual casino in the metaverse. This term generally refers to one or more interconnected virtual worlds that promote interactivity, entertainment and commerce.

Through digital representations known as avatars, Flamingo says customers will be able to gamble in Metaverse Casino playing craps, palace baccarat, mini-baccarat, blackjack and roulette and that Metaverse Casino will also include a virtual stadium, virtual hotel, virtual cinema and hosting virtual hockey games.

“As legitimate businesses and investors explore the opportunities made possible by new technologies, we are watching closely how interest in these new products attracts scammers who offer nothing more than lies and a black hole. for hard-earned money from retail investors,” the acting attorney general said. Platkin.

“As my office works to identify and stop similar schemes in their tracks, we also want investors to be aware of the risks.”

NFTs are digital assets with a unique identifier that exist on blockchains and can represent a real or digital asset like art and real estate.

Securitized NFTs are similar to stocks and other stocks in that securitized NFTs allegedly provide investors with ownership of Flamingo and the right to passively share in half of the profits generated by the metaverse casino.

Securitized NFTs are securities as defined by NJSA 49:3-49(m). However, they are not registered with the Bureau, covered by the federal government, or exempt from registration.

“Registration requirements and other regulations protect investors from fraudulent schemes that can stop without a trace, and those operating in the metaverse are not exempt,” said Howard Pine, acting director of the Consumer Division.

“As we take this action to protect investors, we urge New Jerseyans to do their homework and take advantage of our free resources to learn more about investing.”

The Bureau has concluded that Flamingo engaged in fraud in connection with the securities offering which includes:

  • Falsely stating that it has a partnership with Flamingo Las Vegas Hotel and Casino and other casinos operating in Las Vegas, Nevada.
  • Misrepresenting Flamingo’s press releases on MarketWatch and Yahoo Finance as independently endorsing Flamingo and its securitized NFTs.
  • Failing to provide enough information to allow investors to independently verify that the team that runs Flamingo actually exists.
  • Failing to provide investors with relevant information about his alleged negotiations to purchase virtual land from Snoop Dogg.

“Entities that conceal or misrepresent their true location and contact details should be a red flag for any investor,” said acting bureau chief Amy G. Kopleton.

“It is important to be aware of the risks of buying unregistered securities such as securitized NFTs and investing in similar new opportunities. We ask investors to do their part to protect their money by looking beyond the hype and promises of high returns.

The Order also finds that Flamingo relies on social media influencers to promote securitized fraudulent NFTs.

For example, an influencer known as Tommy – who is not a financial adviser nor authorized to act as an agent for Flamingo – posted a video on YouTube touting the profitability of the Flamingo metaverse investment program that has been viewed nearly 40,000 times.

The Bureau’s investigation was led by investigator Delfin Rodriguez.