Beware of NFT Casino Investment Scams

Securities regulators in Texas and Alabama seem to be on a roll ordering so-called metaverse casinos to stop offering players a piece of the casino action, and this time they are joined by regulators in Kentucky, Wisconsin, and New Jersey as well.

The so-called Flamingo Casino Club is under the microscope and has been issued emergency cease and desist orders by securities regulators in five states who allege the operators are offering a share in future casino profits to those who purchase NFTs or non-fungible tokens issued by the company to invest in its developments. But there’s more to the story than simply not registering the securities – if NFTs are even going to be defined as securities by federal regulators.

The Flamingo Casino Club claimed on its now-defunct website that is was affiliated with the famous Las Vegas casino of similar name. The site also claimed it would donate a portion of NFT profits to victims of the war in Ukraine. However, investigators say they have traced the operation to Moscow, which would also place it in direct violation of sanctions imposed by the US government after Russian forces invaded their neighboring country in late February.

Not the First NFT Casino Investment Scam
In an article here a few weeks ago, while looking at the future of online gambling in virtual reality, we reported on another entity that was also shut down by securities regulators in Texas and Alabama. Sand Vegas Casino Club developers were ordered to stop selling (NFTs) in those two states as a vehicle for investors to share in future profits of the purported casino operation.

According to a story about Flamingo Casino Club which originally broke on CNBC, the 22-page emergency cease and desist order filed in all five states alleges that the virtual casino failed to provide a physical address, phone number, and “evidence to legitimize its promises of profits to NFT holders,” according to the report.

The website is no longer available online but our researchers were able to retrieve a copy of it from internet archives.

The Meta Description of the site states the following: “Flamingo casino club is your ticket to the largest and fastest growing online casino network on the blockchain with only 11111 VIP NFTs ever to be minted.”

An Amazing Virtual World if it Existed at All
Among the enticements and rewards listed on the website for investors were a virtual stadium for games and concerts, “our own” hockey team, the Flamingos, “our own” 35 horses with online horse racing and bets, exhibition centers for fashion shows and meetings, a cinema with all new movies, bowling alleys, tennis courts, a polo and golf club, a hotel and night club, poker club, and a world lottery.

The site also stated that 80% of NFT profits would be returned to VIP NFT holders and it urged “investors” to hold onto the tokens and they could use profits to play in the casino or be paid directly into their wallets.

The roadmap for the Club’s future looked rosy as well culminating in a full scale public launch and the first disbursement of profits to NFT holders in October and November 2022. However, that roadmap was doomed when investigators started looking into the club in March and all traffic came to a screeching halt when the website was pulled almost as soon as the cease and desist orders were issued.

It’s not possible to determine the exact time the site went down as its host, an employee-owned company in Lithuania does not report or allow analytics on its $2.99 per month website hosting service.

What Securities Law Enforcers are Saying
According to the report on CBNC, the outlet conducted an exclusive interview with Joe Rotunda, director of enforcement at the Texas State Securities Board. Rotunda told them, “I was absolutely shocked.”

The emergency order stated that Flamingo Casino Club is “intentionally failing to disclose its assets, liabilities, revenue and other financial information germane to its operations and the development and management of the metaverse casino.”

Rotunda commented: “You’re talking about digital assets and anonymous individuals who are concealing their location. So once the money is transferred … we may not be able to get it back, right? It goes into a black hole through the blockchain, and people may lose everything.”

Investigators were able to dig deeper than amateur sleuths can through a series of subpoenas which showed them that IP address for operator’s mobile devices and desktop computer were registered in Moscow. The investigation most likely began after a deluge of press releases about the ‘ethereal’ property on March 22 in several languages.

“Investors have to chase those ghosts to try to recover. And they’re not going to recover if the money is going to Moscow,” Rotunda said.

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