Five U.S. States Order NFT Sales Halted by Metaverse Casino With Alleged Ties to Russia

Source: Flamingo Casino Club

Regulators in five states simultaneously filed emergency orders on Wednesday against a virtual casino they say has ties to Russia and operates in the metaverse, a digital world where participants can interact with each other, buy products and even play.

State law enforcement officials say Flamingo Casino Club operators have not disclosed its ties to Russia and claimed it has partnerships with legitimate businesses while it does not. did not. The civil case represents a new coordinated effort by state regulators to control some of what is happening amid the metaverse’s explosive growth, where innovation and speculation have also provided fertile ground for criminals implicated in allegations of fraud, theft and deception.

The state securities boards of Texas, Wisconsin, Kentucky, New Jersey and Alabama have filed a 22-page emergency cease-and-desist order outlining what they allege are false allegations of Flamingo Casino Club and demanding that it immediately stop the sale of its non-fungible tokens or NFTs.

“The offer is simply a high-tech scam,” the order said.

NFTs are blockchain-based digital assets that denote ownership of virtual art, music, or in this case, ownership of a metaverse casino to whoever owns the NFT. Additionally, each NFT has unique properties that cannot be duplicated, proving its authenticity.

Investigators began scrutinizing the casino in March shortly after it opened and said they were finally able to track down the people behind it all the way to Moscow.

In an exclusive interview, the top agency official told CNBC that the casino lured hopeful investors with false promises.

“I was absolutely shocked,” said Joe Rotunda, director of enforcement at the Texas State Securities Board.

Virtual concerts, poker tournaments and tennis courts are just some of the perks listed on the organization’s website. The Flamingo Casino Club website also told NFT holders that they would receive 50% of the profits generated by the casino as passive income. It further lured customers by offering a chance to win exorbitant prizes such as Teslas and iPhones in its random lotteries, according to its website.

Screenshot taken from the Flamingo Casino Club website which indicates that NFT holders are eligible for prizes, such as Teslas and iPhones.

Source: Flamingo Casino Club

The casino also heavily marketed its affiliation with a well-known gambling establishment, the Flamingo Las Vegas Hotel and Casino, to ensure investor confidence.

But behind the fancy graphics, promises of profits and big-name endorsements, there was a scheme by Russia to defraud investors that a team of state regulators unraveled, the order says.

Flamingo Casino Club “intentionally fails to disclose its assets, liabilities, revenues and other financial information relevant to its operations and the development and management of the Metaverse Casino,” according to the order.

The order says that although the casino sells securitized NFTs, it did not provide buyers with fundamental information such as its physical address, phone number or any evidence proving that members of its management team actually existed.

Screenshot taken from the Flamingo Casino Club website showing its management team. According to the order, the casino “does not provide sufficient information to allow investors to independently verify that David Aaronson, Waldo Lorenzo, Julia Munn and Sebastian Ruspoli actually exist.”

Source: Flamingo Casino Club

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

Screenshot taken from Flamingo Casino Club website describing financial benefits for retail investors.

Source: Flamingo Casino Club

In addition to this murky money trail, the alleged partnership with the Flamingo Las Vegas, a well-established casino on the Strip, was also fabricated, Rotunda said. The cease and desist order states that “the Flamingo Casino Club’s representations are untrue”, and the Las Vegas casino denies any relationship.

But the bogus partnerships don’t stop there, according to the command. Flamingo Casino Club claims affiliations with Yahoo and MarketWatch, but there is no evidence supporting a relationship with those companies, the order states.

“Flamingo Casino Club does not provide buyers with any information reflecting any type of relationship with Yahoo or MarketWatch,” the order states, adding that the casino provided hyperlinks to press releases distributed to Yahoo Finance and MarketWatch.

In its promotional video, Flamingo Casino Club announced plans to build the virtual casino on The Sandbox metaverse platform, but nothing has been built yet.

The casino’s management team wrote on Instagram that they had delayed buying digital land due to ongoing negotiations with Snoop Dogg, who owns parts of the Sandbox property he plans to build on, according to the order and the casino’s own publications on social networks.

The order states that the casino “intentionally fails to disclose the status of negotiations for the purchase of virtual land from Snoop Dogg” as well as “the anticipated or projected cost of purchasing the virtual land.”

Through a series of subpoenas, regulators discovered that the Flamingo Casino Club’s desktop and mobile device IP address was registered in Moscow, further reducing the chances of investors seeing returns.

“Investors have to hunt these ghosts to try to recover. And they’re not going to recover if the money goes to Moscow,” Rotunda said.

Additionally, Rotunda said casino operators started mobilizing the Flamingo Casino Club just as Russia invaded Ukraine and then announced to investors that some profits from their NFT sales would be donated to Ukrainian victims. .

“And they didn’t just talk about how they were going to donate to Ukrainian civilians one or two people, they publicly proclaimed it,” Rotunda said. “I didn’t see any money benefiting the Ukrainians.”

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