The long-awaited members-only concept Flyfish Club opened in New York City earlier this month offering a restaurant, lounge and exclusive omakase counter.

What it doesn’t offer: NFT memberships.

Just a day before the venue made its debut on Sept. 17, parent company VCR Group reached a settlement with the U.S. Securities and Exchange Commission, which alleged the club had violated federal securities law by selling memberships as NFTs, or Non-Fungible Tokens.

Flyfish Club was ordered to pay $750,000 in civil penalties to the SEC, destroy remaining membership NFTs, and to stop collecting royalties on their sale on secondary markets.

In a statement on its website about the settlement,Flyfish Club posted that the company has been working with the SECfor more than two years to address concerns and ensure that members are protected, “and that Flyfish Club’s vision of being a culinary-driven members club remains intact.”

Flyfish Club in 2022 billed itself as the world’s first NFT restaurant, raising an initial $14.8 million before the operators had even found a location by offering membership NFTs on the cryptocurrency market. The NFTs initially could be bought with the cryptocurrency Ethereum, and then later sold or leased on Opensea.io, a platform described as a sort of eBay for crypto users.

Various membership tiers were available, but, at the time, the NFTs were initially offered at prices that translated to roughly $7,900 to $13,500, though the founding partners promised the memberships would grow in value as they were traded.

(By July 2024, however, the floor price of a regular Flyfish NFT had dropped to about $2,163, or 74% of the offering price, the SEC said.)

And when the NFTs were traded on the secondary market, Flyfish received a 10% royalty payment. By early 2023, those royalty payments totaled more than $2.7 million, according to the SEC.

The concept was created by serial entrepreneur Gary Vaynerchuk, along with restaurant industry veterans David Rodolitz (founding partner of Empellon Restaurant Group), Josh Capon (Lure Fishbar) and Conor Hanlon (NoHo Hospitality). VCR Group is known for a number of other restaurant concepts in New York and Las Vegas, including ITO Omakase, Bar ITO, Little Maven, Capon’s Burgers and Capon’s Chophouse.

At the height of the cryptocurrency fad, the sale of NFTs was seen as an innovative startup model touted as the new Kickstarter. But even before the reported crypto boom turned to bust, the SEC began questioning the practice, arguing that the sale of NFTs represented investment contracts with the expectation of profit—which, by law, should be registered with the SEC.

“Flyfish offered and sold securities worth at least $14.8 million by means of interstate commerce to investors,” the SEC said in a filing. “No registration statement was filed or in effect for the Flyfish NFT offering, and no exemption from registration was available.”

As a result, the commission argued, the club violated the federal Securities Act and was ordered to cease and desist.

Following the settlement, Flyfish Club said membership NFTs that have already been sold don’t have to be destroyed or returned, but owners are encouraged to convert their NFTs to a standard (non-blockchain) membership.

The company did not disclose details about how that conversion would work, and did not respond to press questions. A standard annual membership is listed on the website as $3,500 for an individual, plus a one-time $1,500 initiation fee.

NFT holders can still sell their previously purchased memberships on the secondary market with the same terms, though Flyfish can no longer accept royalties for NFT sales.

Otherwise, the club posted, nothing will change.

“This settlement is a significant milestone for us as it allows us to continue with our plans and focus on what we do best: providing exceptional member experiences, creating beautiful food and beverage, producing exciting entertainment, and building a vibrant and dynamic community,” the Flyfish statement said.