CyberKongz Faces SEC Wells Notice for Alleged Securities Violations

The SEC has issued a Wells Notice to CyberKongz, an NFT gaming project, signaling a new regulatory crackdown on blockchain-based initiatives.

In a statement shared on X (formerly Twitter), CyberKongz explained: “The SEC’s Division of Enforcement approached us with alarming claims that you cannot have a token (ERC-20) alongside a blockchain game without registering it as a security.”

A Wells Notice is a formal alert from the SEC, indicating it may take enforcement action based on its preliminary findings. Once issued, the recipient usually has 30 days to respond before the SEC decides on further steps.

CyberKongz Pushes Back Against SEC Charges

The project warned that potential charges and a full investigation could have “serious implications” for the blockchain gaming sector. CyberKongz vowed to fight back, saying it would defend the broader industry.

This scrutiny is particularly concerning for projects that combine NFTs with utility tokens. Operating without venture capital or large financial reserves, CyberKongz said it would contest the SEC’s notice.

“We’ve been quietly enduring this for two years since the SEC first reached out,” the team said, accusing the agency of showing “a fundamental lack of understanding of blockchain technology” and spreading “misinformation and unjust accusations.”

Focus on Genesis Kongz Contract Migration

The SEC’s investigation appears to center on CyberKongz’s April 2021 migration of its Genesis Kongz contract, which regulators interpreted as a token sale. However, CyberKongz insists it was merely a technical upgrade, not a securities offering.

The gaming project is known for its 2D and 3D avatar NFTs, which players use in its “play & kollect” games hosted on the Ronin blockchain.

This latest notice comes after similar scrutiny of NFT platform Immutable in November, where token sales were also flagged by regulators.

Industry Leaders Show Support

Jihoz Zirlin, co-founder of Axie Infinity, voiced support for CyberKongz, tweeting: “You know you’re part of a revolution when you start getting persecuted. I stand with CyberKongz.”

Despite the regulatory concerns, CyberKongz’s floor price has risen. As of now, it stands at 8.2 ETH (around $32,800), up 14.4% in the past 24 hours, according to CoinGecko.