Crypto Mom, Hester Peirce points out grey area in fractionalized NFTs

SEC Commissioner, Hester Peirce, has sounded a note of warning to all those engulfed in the ongoing NFT craze. She noted that fractionalized NFTs and several non-fungible tokens could easily be classed as investment contracts under U.S. securities law.

While speaking at Draper Goren Holm’s Security Token Summit yesterday, the commissioner, otherwise known as “Crypto Mom” warned the issuers of fractionalized NFTs products. According to her, they could unknowingly be issuing investment products. She said:

You better be careful that you’re not creating something that’s an investment product — that is a security.

For clarity, since the prices of NFTs are generally high, a fractionalized setup would allow smaller investors to gain exposure to a small share of the high-priced NFT. There are already solutions offering fractionalized non-fungible tokens.

Away from NFTs, Peirce criticized the use of the Howey Test to ascertain whether or not a crypto asset is a security. The test was drawn from a landmark 1946 court case involving real estate contracts issued by the owner of a citrus grove to fund the expansion of the business. She opines that the same scenario cannot be applied in the modern-day cryptocurrency industry.

This may not be unrelated to Ripple’s ongoing battle with the SEC on charges that XRP is a security.