Five State Regulators Issue Emergency Orders to Shut Down Metaverse Casino

Five State Regulators Issue Emergency Orders to Shut Down Metaverse Casino

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Regulators in five American states have issued cease-and-desist orders to a digital casino with links to Russia marketing NFTs to Americans.

The Flamingo Casino Club, a virtual casino offering with supposed ties to Yahoo and MarketWatch, was issued emergency orders from five state securities regulators to stop selling NFTs. NFTs are digital certificates of authenticity for virtual or physical property purchased using cryptocurrency. They are recorded immutably on a blockchain such as Ethereum. While NFTs can be bought and collected in the same way that works of art are in the physical world, sometimes ownership of NFTs grants one exclusive privilege and the opportunity to belong to an elite online community.

Owners of NFTs from the Flamingo Casino Club were offered virtual concerts, poker tournaments, and tennis courts as perks for owning NFTs. “We distribute 50% of the profits generated in our casino to our NFT holders,” reads a graphic on the website, offering NFT holders a way to earn passive income. Entries into lotteries promised a chance to win big-ticket items, such as Teslas and iPhones. The head of enforcement at the Texas State Securities Board was floored by the abundance of false promises made to investors. “I was absolutely shocked,” said Joe Rotunda.

“You’re talking about digital assets and anonymous individuals who are concealing their location,” added Rotunda. “So once the money is transferred…we may not be able to get it back, right?…people may lose everything.”

When did regulators smell a rat?

In March, investigations into the casino began soon after the casino opened its virtual doors. Soon after, links to Moscow surfaced, as investigators unearthed the IP addresses for a computer and mobile device linked with the virtual casino as belonging to Moscow. Rotunda said that it would be difficult to trace any lost funds because of that. “…They’re not going to recover if the money is going to Moscow,” said Rotunda.

Furthermore, the website contained no actual photos of management, nor did it provide any physical address. Partnerships with an eponymous physical casino on the Las Vegas Strip and financial news outlets Yahoo and MarketWatch all proved fictitious.

The online metaverse casino also made exaggerated claims about donating funds to Ukrainians beset by Russia’s invasion on Feb. 24, 2022. “I haven’t seen any money going to benefit Ukrainians,” said Rotunda.

Regulators have their hands full curbing unregistered NFTs as securities

The Flamingo order is the second enforcement action issued by the Texas, Alabama, and Kentucky securities regulators in less than a month. Last month, they also called out an online casino developer in Cyprus for offering NFTs as unregistered securities. The NFTs were called “Gambler” and “Golden Gambler” and were offered with promises of shares in the casino’s profits, up to $81,000 a year.

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