July 21, 2024
SEC Chair Gensler's Stance: Tokenizing Pokémon Cards Doesn't Make Them Securities
Policy & Regulation

SEC Chair Gensler’s Stance: Tokenizing Pokémon Cards Doesn’t Make Them Securities

When questioned if a tokenized Pokémon card could be categorized as a security, Gary Gensler, the chair of the SEC, acknowledged before the House Financial Services Committee (HFSC) today that, in his opinion, a Pokémon card is not a security under US law.

Representative Ritchie Torres of New York questioned Chairman Gensler of the Securities and Exchange Commission (SEC) during a hearing of the House Committee on Financial Services on Wednesday regarding SEC supervision.

“Suppose I were to purchase a Pokémon card,” stated Ritchie. “Would doing so constitute a security transaction?”

“You can purchase a Pokémon card—I don’t know what the context is, but if you’re just purchasing a Pokémon card,” Gensler replied before Torres chimed back in.

In response to Torres’ question about whether the card serves as a security, Gensler said, “At a retail store, that’s not a security.”

The U.S. Representative then questioned Gensler about whether purchasing a blockchain token that symbolizes the actual card—basically, a Pokémon card NFT—from an online exchange would result in the same categorization.

“I’d have to know more,” Gensler replied.

“So for you, the process of tokenization is what transforms a non-security transaction into a security transaction?” Torres questioned.

“If the investing public is anticipating profits based upon the efforts of others and exchanging funds, that’s the core of the Howey Test,” Gensler replied.

Following the hearing, Torres referred to Gensler’s remarks as “incoherent” when contacted for more information.

“Chair Gensler’s answers to my questions were as incoherent as his overall approach to regulating crypto,” Torres stated. “The manipulation of securities law that has become his modus operandi is an open invitation to arbitrary enforcement.”

Pokémon cards aren’t ever securities, according to Torres, and tokenizing them or putting them on the blockchain doesn’t make them become securities overnight.

“Even though Chair Gensler pretends to be ‘technology-neutral,’ the tokenized Pokémon hypothetical reveals a profound prejudice against blockchain technology,” Torres further added.

What use does it serve to tokenize a Pokémon card as an NFT? One benefit is that it bridges the gap between the physical and digital worlds by giving the owner of a real card another opportunity to display their collection aside from inviting guests over to their living room or home office.

Additionally, it’s not a hypothetical. Collectors who purchase Pokémon cards on Courtyard, a cryptocurrency-powered card-trading site, keep a digital copy of the card in the form of the Polygon NFT version, while the actual card is kept safe and protected by the financial services company Brinks. Such post-sale tokenization initiatives are not being carried out by The Pokémon Company, the IP owner of the well-known Nintendo game brand.

According to Courtyard’s website, tokenized Pokémon cards also provide collectors with the chance to earn passive royalties on their wares each time they are sold. If they decide to sell their physical cards in the future, owners can submit to Courtyard entire collections to be kept in exchange for NFTs, which serve as digital proofs of ownership.

Other U.S. Representatives questioned Gensler during the SEC hearing on Wednesday on issues including the damage artificial intelligence or AI-generated content might have to the American economy, encounters Gensler had with various authorities and other issues.

But this isn’t the first time Gensler has been asked to provide clarification on blockchain assets. Back in June, Gensler compared crypto actors to “hucksters,” “fraudsters,” and “scam artists” from the 1920s and accused the larger crypto business of “wide-ranging noncompliance.” Beyond mentioning the Howey Test, Gensler and the SEC have not yet provided regulatory clarification about what constitutes a security and what does not, or a clear route ahead for cryptocurrency enterprises.

“A digital asset is not a security in itself but can be part of an investment contract, which is a security under the Howey Test. An investment contract requires exactly that—a contract,” Torres stated regarding his broader stance on U.S. crypto regulation.

“Despite his air of supreme self-confidence, Chair Gensler could not cite a single Supreme Court case in which the high court found an investment contract in the absence of an actual contract. The Howey case itself involved not one but two contracts,” the representative concluded.

Image: Wallpapers.com

Disclosure Statement: Miami Crypto does not take any external funding, or support to bring crypto news to the readers. We do not have any conflicts of interest while writing news stories on Miami Crypto.

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