Before there was digital currency, there was physical currency.

Before there was physical currency, there was barter and trade.

If necessity is the mother of invention, then the necessity of exchanging currency

for goods and services means there was an opportunity for the invention of fraud.

Fast forward to today, investment fraud has remained a constant occurrence,

only the tactics continue to change.

Join us for a special three-part series that explores the different frontiers of fraud.

From the early days of investing and the origins of the blue sky law,

to the wild wild west of non-traditional investments within the metaverse.

This is part three.

The next frontier, a virtual wild west and non-traditional investments.

Hello and welcome to Real Life Regulators,

a podcast aimed at educating investors using real life examples of investment fraud cases.

You are currently listening to the final installment of a special three-part series

highlighting the evolution of investment fraud.

This podcast is brought to you by the North American Securities Administrators Association,

also known as NASA.

I'm Rachel Carden, Director of Investor Education

for the Tennessee Department of Commerce and Insurance Securities Division.

My co-host for this episode is Nick Vonderut,

Education and Public Relations Manager for the Alabama Securities Commission.

And also joining us is Joe Rotunda,

Director of the Enforcement Division of the Texas State Securities Board.

Joe, before we dive into today's episode,

could you please start off by telling us a little bit about who you are

and what you do in your current role?

Thank you, Rachel.

And thank you, Nick.

I am excited to be here today and talk about the metaverse with y'all.

My name is Joe Rotunda.

I am the Director of the Enforcement Division of the Texas State Securities Board.

I am also privileged to serve as the Vice Chair of NASA's Enforcement Section.

As the Director of Enforcement in Texas,

I manage a team of attorneys and investigators,

and our job is to protect the public.

We conduct investigations into white-collar scams, investment fraud,

and schemes devised solely to separate an investor from the retirement savings.

Excellent.

Thank you for that introduction, Joe.

And thank you again for joining us today.

So our theme for this episode focuses on the next frontier of non-traditional investments

and how it's a virtual wild, wild west.

So please tell us, in your opinion,

what do you think the next frontier of investment fraud is actually going to look like?

So looking into that crystal ball and looking into the future,

I think the next frontier of investment fraud is going to be fueled by technology, right?

Today, we're talking about the metaverse.

The metaverse is very closely associated with many different types of digital assets,

everything from cryptocurrencies to NFTs to decentralized autonomous organizations

operating independently without the control of a trusted third party to simulate commerce

and physical realities.

Wow.

And the metaverse is something that we hear a lot of,

but a lot of us are having a difficult time understanding exactly what the metaverse is.

Can you kind of help explain to us in simple terms what the metaverse is?

Yeah, actually.

And I think Rachel kind of hit it really, really well, the wild, wild west, right?

I have heard the metaverse described as the wild, wild west.

I've heard it described as a strange new world.

Some people refer to it as an alternative reality, right?

Something that may actually replace the physical world.

So there are many different concepts of metaverses, right?

And the word metaverse does mean different things to different people.

But here's really what it comes down to.

A metaverse is an immersive 3D environment, right?

It's like an immersive 3D world.

It has physics, right?

It promotes commerce.

There are areas to explore, places to play.

And when you enter these strange new worlds,

you're doing it digitally, not physically, right?

So if I were to enter the metaverse or a metaverse today, right now,

while we're talking, I would do so in the form of an avatar.

Now, what is an avatar?

An avatar is a digital representation of yourself, right?

It is a computer-generated person in a virtual reality that you control.

And the avatar represents you, right?

It can have a hairstyle like yours.

It can have your same fashion sense, right?

It can be you.

And what do these avatars do?

Well, you control your avatar in these metaverses.

And you can explore. You can play.

You can shop. You can even work, right?

There's a lot of things you can do in metaverses.

And we'll talk about some of those later on today.

But really, what it comes down to is this,

is a metaverse is an alternative digital reality

that is designed to reflect the physical world.

So how exactly do you get to the metaverse?

Well, we could do it right now, actually.

But now, there are many ways to jump into a metaverse, right?

Sometimes we see these advertisements or articles,

and they show people wearing headsets and goggles, right?

Things that cover up their eyes and project images.

That's one way to enter a metaverse, right?

That creates a very immersive experience.

But it's not the only way.

We can enter the metaverse as long as we have an internet connection

or a keyboard, a mouse, a computer, a monitor, and a Web3.0 wallet.

Now, the Web3.0 wallet is somewhat essential for most metaverses.

It is a wallet that is designed to hold different types of cryptocurrencies

that you can take into metaverses and that do things in metaverses.

So really, what it comes down to is this.

As long as we have a computer, right, with an internet,

we can download one of these wallets very quickly in a matter of minutes

and jump right on into the metaverse.

Wow.

Well, is there more than one metaverse, or is it just the metaverse?

There isn't just one metaverse.

Although a lot of people, a lot of enthusiasts, a lot of real purists,

think the ultimate goal is getting to that one single digital representation

of the physical world.

What we're finding is there's not just really one or two or three metaverses right now,

but there are many different metaverses,

and we can choose which ones we want to go in.

And some of them are actually built for very specific purposes,

highly tailored to user content.

Others are far more general, right?

Like going to a new city and exploring a new city,

going into a metaverse and exploring the virtual city,

the virtual buildings, the virtual streets,

and interacting with other virtual people through our avatars.

Wow.

Yeah, and if we could like step back for just a minute,

you know, we talked about a lot of different definitions there in the beginning,

and for those who may not be familiar with the metaverse,

but also may not be as familiar with cryptocurrency,

can you give us just two brief definitions of what a cryptocurrency is

and what an NFT is?

Sure, absolutely.

What is a cryptocurrency?

Well, it's not like money in the sense that you can hold it, right?

You can't put it in your wallet and put that wallet in your pocket.

It's not physical.

It is a long line of computer code, right?

What it boils down to is the cryptocurrencies are long lines of zeros and ones.

But the key difference between these digital currencies, right?

Cryptocurrencies and fiat currencies.

Cryptocurrencies are administered through what's called a blockchain.

Now, that is really the fundamental concept,

and the idea of a blockchain is it removes a trusted third party,

such as a bank, right?

A financial institution, a credit union,

all of those parties from transactions,

and instead it maintains the ledger on a series of computers

controlled by users all around the world,

and they maintain the permanent ledger of all transactions

with a particular cryptocurrency,

and that's what we call the blockchain.

So what is an NFT?

An NFT is a type of cryptocurrency

that cannot be reproduced identically, right?

It is unique.

While one Bitcoin may be the same for all intended purposes

as the next Bitcoin and the next Bitcoin,

every NFT is unique.

And for that reason, NFTs are used to say digital means

of transferring things like art, right?

Something else that's unique.

Music, right?

Something that somebody may have title to,

somebody may own the rights to, right?

These things tend to be put on NFTs,

and they are also transferred, right?

Back and forth through a blockchain.

Well, so now that we kind of got the basic definitions

of cryptos and NFTs kind of circling back to the metaverse,

do you think that this is going to be something

that's going to be used to replace the internet

in the means of socializing and education?

Right now, I can go and get on the internet

and listen to pretty much any song I want to.

You know, I have a subscription to a service, right?

I use it on my smartphone.

I can use it on the internet.

I can listen to music and it's great.

And I can even go to some websites

and I can see some videos of concerts.

And that too is great.

It's a very immersive experience.

But with the metaverse, you don't just sit back

and listen to music.

You don't passively watch videos of bands in concert.

You can use the metaverse to attend these concerts, right?

Again, with the keyboard, a mouse,

the same thing that we use through the internet

to watch videos, to listen to music.

But with the metaverse, you can actually go

into the metaverse and experience the concert, right?

Through your avatar.

And in the metaverse, nobody has to worry

about the nosebleed seats, right?

Everybody gets a front row seat.

So yeah, I can definitely see how some aspects,

at least right now, of the metaverse

could gravitate towards traditional internet use

and there will be a blending.

Other concepts, right now, they seem like science fiction.

They seem like witchcraft, frankly.

But that doesn't mean that they are not going to be very,

very integrated within our use of online communications

and online tools.

And Joe, when we were talking earlier about the metaverse,

you had brought up Pokemon Go, how popular this game is

and how much everybody was using it and playing around with it.

Can you kind of explain kind of how Pokemon Go,

how it would relate to some of the services

that the metaverse could actually provide?

Sure, absolutely.

Now, here's how it worked.

Now, here's how it worked, it actually used something

like a metaverse, right?

It actually used kind of the same concept

and the idea was this.

You would go outside in the physical world

with a smartphone and on that smartphone,

you would be able to uncover digital representations

of creatures, right?

So if I pointed the smartphone perhaps at my house,

at my front door, I might see a little creature

living in my yard and I may need to go out and get him.

Now, I can only see him right on the smartphone.

So what that smartphone did is it kind of created

a new world for me, right?

It showed me things in the physical world

that I can't see and I needed to go interact with them.

That's how Pokemon Go kind of works, right?

It creates a little virtual world

and takes these kind of concepts

and brings it right to you, right to your front yard.

And there's a number of companies

that are using those concepts now

and these aren't small companies, right?

These aren't startup businesses

or at least not exclusively.

These are some of the biggest businesses in the world.

Taking it one step further,

is it possible to purchase things in the metaverse?

For example, can you purchase land in the metaverse?

Boy, you can.

You can buy just about anything, including land.

When we talk about these metaverses,

we talk about how they are an attempt

to kind of digitalize the real world,

create a virtual environment

that is very similar to the real world

and that includes commerce.

So yes, you can buy and sell virtually anything

and there's two real industries

and I think you hit the nail on the head

with one of them that's virtual land

and the other one I'm really seeing is fashion.

You can buy a number of different items

and accessories for your avatar.

Now, we talked about how you enter a metaverse

through your avatar

and your avatar is a digital representation of yourself.

Well, your avatar needs clothes

and sometimes you'd like some really nice clothes for them.

So where do you go to buy clothes?

You buy them from retailers that we know

in the real world, the physical world

who are now doing business in the virtual world.

So that's one area where I really see it,

but land is absolutely fascinating.

Land is one of the hottest metaverse commodities right now

and it looks like it is going to continue

to be an extremely hot commodity

and here's why.

Now, if I want my avatar to have a house,

I've got to buy some virtual land to build a house on

and I got to use real money to buy cryptocurrencies

to buy that virtual house.

But it's not just virtual houses, it's virtual stores.

We have financial services firms operating in the metaverse.

We've seen the gambling firms operate in the metaverse.

The fashion firms all operate in the metaverse.

So everybody who's doing business in the metaverse

needs some type of land.

But there's also a number of just, I don't know,

metaverse enthusiasts who are spending big dollars for land.

And I'll give you an example.

So late last year, Snoop Dogg entered the metaverse, right?

The musician and the artist Snoop Dogg entered the metaverse.

He has a mansion.

It is a virtual mansion, but it's a mansion.

But it's a mansion. It is very nice.

I've seen the interior.

I've never visited in the metaverse, never traveled there,

but I've seen it online.

I've seen pictures of it.

I've seen his pictures of it.

And it's got a big pool.

It's got a huge driveway.

It's got a number of different rooms.

There's a movie theater.

I think there's a bowling alley.

It's everything you would expect from a mansion

in the physical world now there.

Well, you had an individual who is anonymous,

but wanted to buy land next to Snoop Dogg.

And they did.

And it cost a lot of money.

To buy virtual plots of land next to Snoop Dogg's mansion,

it cost just under $500,000.

A lot of money.

Now, that's $500,000 for a virtual plot of land just for comparison.

I thought I'd look at the prices of real estate.

I guess we can say that real real estate, real real estate.

We can talk about real real estate.

And I live in Austin, Texas, so I wanted to take a look in Austin.

Austin is just way off the charts in terms of the cost of housing.

So I also looked at Dallas and Houston.

Dallas and Houston, the median price of a new home,

even after the pandemic surge, was about $250,000.

Now, Austin is a little higher.

It's just under $500,000.

But what that means is that that plot of land right next to Snoop Dogg's mansion

cost twice as much as the median home in Dallas,

twice as much as the median home in Houston,

and about the same as the median home in Austin, Texas.

Wow.

Sorry, Nick.

I was just going to say and follow up.

So this is you're purchasing something virtual,

but you are using actual dollars to make that virtual purchase.

Is that correct?

Yes, although usually it's with cryptocurrencies,

but you have to buy those cryptocurrencies

with either actual dollars or get them somehow, right?

So virtual land is typically sold as an NFT.

And we talked about those NFTs being non-fungible tokens

about each one being unique.

And this is a good example of that, by the way, you don't want a thousand people

having the same plot of land next to Snoop Dogg, right?

Then you have a thousand people fighting over that plot of land.

That plot of land is unique and it's stored as an NFT because NFTs are unique.

So to purchase an NFT, you need to have a cryptocurrency wallet

because NFTs are cryptocurrencies and you have to have a wallet

that supports NFTs, which a lot of them do right now.

But to actually get the cryptocurrency necessary to purchase that land,

you're typically going to have to purchase it from somewhere, right?

Buy it from an exchange.

There are a number of them now.

When we started talking about cryptocurrencies,

even just five years ago, there weren't that many exchanges.

But now I can get on my smartphone through Wi-Fi

and use real money to buy cryptocurrencies

and then use those cryptocurrencies to buy virtual land.

So I have just a couple of questions about this virtual land.

When we're dealing with the real estate,

what drives the price up is that we're not making any more land.

We are kind of stuck with the land that we have.

Well, in the metaverse, is there a limited supply of land

or are they just going to be able to just make as much land as they want to?

And that's the first part.

The second part is, when we buy the land in the metaverse,

who are we buying it from?

Boy, those are great questions.

And they both kind of go back to the same source.

So let's start with what kind of drives the price of the land in the metaverse.

And you're right.

It is, in the real world, we know they're not making any more land.

And we have to be very, we're conscious of that, right?

That plays into the market.

In the metaverse, you can theoretically make infinite plots of land, right?

Over and over and over again, because the metaverse is not constrained to geography.

It does not know the physical limitations that we have here in the real world.

But most metaverses are controlled by what are called decentralized autonomous organizations,

or DAOs.

And what a DAO is, is it is a, think about an organization that would run without people.

That's what a DAO is essentially designed to do.

It is powered by what's called a smart contract.

A smart contract is simply code in a cryptocurrency that permits something to happen.

And that's how DAOs work.

So in the metaverse, if I hold maybe a cryptocurrency, or I have a plot of land, or there is some

other kind of threshold level that I meet, I can cast a vote in the DAO, right?

Nobody is controlling this DAO.

It is simply receiving votes to determine whether or not something should happen.

And that something can be, do we release more plots of land for sale, right?

In other words, individuals who have an interest in that, either have a plot of land, have

cryptocurrencies, something along those lines, they meet some threshold, they get to cast

votes and they can vote to release more land.

That is typically how it works.

Now, many metaverses start with a number of plots of land that they're putting on the

market, right, that aren't sold.

So there is kind of a limited supply of those.

You don't necessarily know how votes are going to go with the DAO.

Maybe people will vote to release land.

Maybe they will vote not to release land.

There's definitely uncertainty there, but that's typically how it works.

Now the second question is, is who do you buy these plots of land from?

And wow, there are a number of answers to that.

But I'll start with, and I'll just keep it very general and kind of high level here.

And if we want some more information, we can talk about that later.

But first of all, you can buy plots of land from another person.

If I would own an NFT of that land next to Snoop Dogg, I could sell it to whoever I wanted,

right?

I could announce to the world that Joe is selling a plot of land and if you want it,

you have to give him $500,000 and we can then engage in a transaction.

Many times those transactions take place through an online marketplace dedicated to NFTs, right?

So I could probably go to one of those online marketplaces and they work kind of like just

the traditional online marketplaces like the Craigslist of the world, right?

Where you get to browse listings, maybe find one that you're interested in.

That's kind of how these online marketplaces work.

They match people together.

They match people looking for goods and people looking for services with people providing

those goods or services.

In this case, we're talking about NFTs.

Other times you can buy them from the DAO, from the platform that is managing the metaverse.

You can buy them directly.

Sometimes they're raffled off.

Sometimes they are what is called airdropped, right?

Where an issuer sends land unannounced free of charge to your cryptocurrency wallet.

Maybe because you've been a good customer, you have a number of different cryptocurrencies

or you meet some other category for getting those land, but there's a number of different

ways to get it.

The most popular though by far is probably buying it online through an online marketplace.

So who exactly then owns the metaverse or governs it?

The idea with metaverses, with most metaverses, I should say, most of the things we traditionally

think about with metaverses is that nobody owns it.

Nobody governs it.

There is all decentralized.

It takes that concept that we talked about with the blockchain.

With the blockchain, you had commerce and transactions without that trusted third party,

the bank or the financial institution.

That's how metaverses are largely designed to work.

Instead of having a trusted third party that is a financial institution, we are removing

that trusted third party that we consider the government.

So it removes that aspect, allows the community to have a voice in how that metaverse should

be administered.

What are people exactly investing in the metaverse?

Another fantastic question.

We've talked about land, so I may not talk about land speculation, but let's really get

to the heart of it.

Metaverses are designed to simulate the real world.

That means that anything that you can invest in, in the real physical world, you can probably

find a metaverse equivalent.

We've seen a number of different types of investments that are tied to the metaverse

or actually in the metaverse.

I'll give you just an example of a few of them that we've seen.

There are start-up businesses that want to begin operating in the metaverse, but they

need capital because they're start-up businesses.

They don't have seed funding.

If this was a traditional company, that company would probably sell equity or take out loans

but mostly sell equity to raise capital for operations.

That's how the business owner is going to develop the business.

Let's transition on to the metaverse.

If somebody wants to start a metaverse business and they need capital, what do they do?

They raise money.

They sell equity.

What does the investor get?

We talked about how in the real world, the physical world, selling equity would convey

maybe an ownership interest in the company, maybe a right to receive profits.

That's what we're seeing in the metaverse.

If somebody wanted to start up a metaverse business and sell equity, oftentimes they'll

be conveying a portion of ownership in that metaverse company to the investor along with

the right to receive profits.

That sounds very similar to what we know, what we do, how we work, how we invest, how

we plan for retirement every day.

It is.

It just takes the concept one step further.

Ben, is there any kind of protection or regulation in the metaverse when it comes to investing?

Well, that is the million dollar question.

I would think that if we uncovered a securities fraud in the metaverse and attempted to investigate

that and stop it, we would be told there is no regulation in the metaverse.

Here's what I know as far as regulation goes, and here's what I know as far as securities

laws go, whoever is in the metaverse, perpetrating any type of a securities fraud, well, they're

also in the real world and they're living in the real world.

They're physically present in the real world.

They can be jacked into the metaverse much like Neo would jack into the matrix in the

movies, but they've got a physical presence here.

If they are in Texas, Texas would have an interest.

If they are in New York, if they are in Alabama, right, New York, Alabama, Tennessee, if they're

in Tennessee, Tennessee is going to have an interest.

We're going to aggressively investigate those frauds, and if somebody is located in Texas

or there are victims in Texas, you can bet that my state will be very active, and I know

other states will too.

So unfortunately, you know, fraud will happen everywhere, whether it's on real land in the

metaverse, it happens everywhere, but what are you seeing as far as, is there a key demographic

that is participating in investing in the metaverse?

You know, there's not.

And when I got into this, I really would have thought that this is a type of investment

that would maybe be geared towards younger retail investors, maybe investors who first

began buying stocks during the pandemic, perhaps through their smartphone, right, that's true,

I mean that is, and the demographic probably does skew a little bit lower, but here's the

thing is that there are many traditional companies, right, that are financially tied to the metaverse.

These are everything from Microsoft and Apple.

We talked about some of the car companies.

There are medical device companies, medical procedure companies, there are schools, private

and public schools, there are promoters, concerts, you name it, that are all heavily invested

and we own their stock, right?

So if I own shares of stock in a company that is heavily invested in the metaverse and relying

on the development of metaverse technology to profit, then I'm actually invested in the

metaverse.

Well, how do you think the metaverse investment fraud is going to be different from the traditional

investment fraud?

Oh, it's going to be scary, it's going to be dangerous, it's going to be harmful.

I have no problem in saying that the metaverse gives white collar criminals and scam artists

tools they need to even more effectively perpetrate frauds, right?

And let's just take an example.

We know that white collar criminals oftentimes impersonate real registered securities professionals.

We know that they will adopt their name, they can use the internet to create a fake webpage

pretending to be that person, they can post photos on that website to give it legitimacy

to make it look like that real registered person is actually using that website.

They can put in a CRD number, which is a unique identifying number assigned to each individual

or firm dealing in the registered securities industry.

They can use a number of tools already, but the metaverse, the metaverse takes it on steroids.

Well, an avatar, right?

We have an avatar, you may have an avatar out there that looks like Joe Rotunda, that

looks just like me, but do you know who's controlling that one?

You never know, right?

There are different, these are the new techniques.

We get a number of cases from investors who were deceived for maybe spoofing, right?

Where somebody sends an email that appears to come from a legitimate source, but really

comes from the bad source and I think we all know that sometimes at work we'll get a notice

from our IT department that we shouldn't click on a particular link in an email that

at least malicious software.

That's pretty easy.

But I've heard concerns from security experts, not about metaverse links or spoofed metaverse

emails, but about malicious conference rooms, right?

Conference rooms that may be equipped with some type of malware that can either permit

a thief to steal from an investor or compromise that investor's metaverse wallet.

I've heard about the possibility and the concerns that individuals, people who appear

to be receptionist, people who appear to be professionals, people who appear to be financially

savvy or be associated with a particular company may actually simply be a facade controlled

by a bad actor with nothing, doing nothing more than trying to trick an investor out

of his money.

So give us, that's a lot of great discussion about what that is going to be in the future,

particularly when it comes to investment fraud.

Give us some red flags that folks should be aware of to ensure that if they decide they

want to participate in the metaverse that they can be aware of what to look for so they're

not getting scanned.

The best way to protect yourself in the metaverse is not through some type of futuristic technology.

You don't need a lot of technical savvy.

You don't need third party applications.

You don't need to pay for a suite of security software.

Let's start with the basics and here they go.

Number one, know who you're dealing with.

Many times promoters of metaverse investments don't disclose their identity and that's fairly

common in the cryptocurrency industry but it's not common in the investment industry

or the financial services industries.

You need to know who you're dealing with.

So that's always a big one.

Number two, investors are entitled to all material information.

Investors have to truthfully disclose all material information in connection with the

offer or sale of a security and that information in addition to the identity of the person

you're dealing with can be very, very simple and basic.

For example, where are they located in the real world?

What is their address?

Now why is that important?

Well, if something goes wrong with an investment in the real world, we can contact the person

who sold it to us.

We can have a conversation, maybe we can work out whatever the issue is.

If things get really bad, I may have to file a lawsuit, I didn't know where to serve that

person, I need to serve them with court papers to start that lawsuit.

Many promoters of the fraudulent metaverse investments, the promoters who are acting

illegally not only are not disclosing their true identities, you have absolutely no idea

where in the world they are located or any means of contacting them and that gets really

scary because what does that allow promoters to do when things go bad?

Well, when things go bad and the thief decides that he has raised enough money and it's time

to get out of town or in this case get out of the world, he can't leave fingerprints,

right?

The fingerprints will always lead to him.

If you don't have the name, you don't have the physical location on the address, you

don't know where the person is located in the real world, you're probably not going

to be able to recover your money.

You're probably not going to be able to even take steps to recover your money.

Getting that information early on is extremely important and people who don't disclose that

information give themselves an avenue of escape.

So these bigger companies that are actually participating in the metaverse already and

the ones that are offering investment opportunities, are they registering their investment opportunities

to investors?

Yeah, it's kind of fascinating.

We can take a look at SEC records for these companies and I went through a little exercise

earlier this year, it was around March of this year, it was in April, I wanted to gauge

metaverse activity and I was trying to figure out a way to do that and I figured looking

at SEC records may be insightful because public companies have to file reports and companies

that are operating in the private markets typically have to file forms.

I wanted to see how many of those reports in those forms showed that there was metaverse

investing going on or they were operating in the metaverse, they had some sort of financial

connection to the metaverse.

So I went to the SEC's Edgar public database and I searched it by keyword going back all

the way to 2001, so about 20 years and I looked for the term metaverse and I wanted to see

how many companies were again mentioning the word metaverse in their public filings.

Of course, we're going back 20 years, there wasn't much but we got to I think it was 2017,

2018, 2019, we started having some hits but they were all low.

I think 2017, 2018, 2019 combined 10 securities filings with the SEC mentioned the word metaverse

but then it exploded and that's how I know what we're talking about today is really,

really hot.

We have a trend, we can look at the data.

From March of 2021 through March of 2022, there were more than 1,200 securities filings

with the SEC that reflected the word metaverse.

So over that 12 month period virtually all metaverse activity took place.

More than you may have had years where there was one filing, two filings, three filings,

maybe 10 but certainly no more but that one year period that really showed exactly where

we are and I've continued to monitor the SEC database looking for things like metaverse

and NFT and I can tell you they're still extremely hot among the securities firms.

So should investors, whether they're investing in products in the real world or in the metaverse,

would a good step for protection be to check out and see if the product is in fact registered

with the SEC or with the state and if it's not, maybe they should pause?

That is fantastic advice.

If I could put that on a billboard and post it around town, right?

Check with your state securities regulator before you invest.

Not being registered is a red flag, absolutely.

We talked a little bit about the jurisdiction and the regulation earlier but just to make

it very clear, if state securities regulators are responsible for regulating the securities

markets in their state.

Now that may not seem like it touches on the metaverse but any individual in their state

right now who is offering securities through the metaverse and is physically located in

the state, we regulate them and if that person is not registered, that means they're not

complying with important laws that are solely designed to protect investors.

That's why we have securities registration laws.

This is not about getting a license like a driver's license and sticking it in your pocket.

Individuals have to go through a background check.

They have to be part of a supervisory system, a compliance system, firms have to open their

books and records to regulators so that regulators can conduct an audit and make sure that investor

funds are being preserved and invested as directed, right?

These are important laws for protecting the public.

Individuals operating outside those laws, not complying with those laws, are not providing

their investors the same protections that registered firms are.

And Joe, you mentioned that huge spike between 2021 and 2022.

Do you think that was caused by the pandemic kind of ushering in that digital focus or

do you think that was organic and that was kind of the way that we were always going

to trend?

I think it's probably a combination of both.

I think the pandemic definitely accelerated this.

I also know that these, you know, especially some of the more popular metaverses like the

Sandbox or Decentraland, right, have been in development for a long time and the pandemic

wasn't the beginning or the end of them.

But I think metaverses and metaverse technology really came to the forefront during the pandemic.

And there's a couple of reasons for that.

Let's really hit them real briefly.

Number one, we talked about metafactories.

What about a metaversity?

We have universities that are developing what they call metaversities.

And these are universities that we know, these are not very small, right, tiny.

I know I went to the University of Kansas for law school.

The University of Kansas School of Nursing is developing a metaversity solely for nursing

students.

Stanford held an entire course, right, throughout an entire, however long the semester was,

in the metaverse.

And individuals connected with goggles, right, you put on goggles to connect and you would

go on field trips in the metaverse and see places that you could never travel to, right,

in the real world.

You would build things in the metaverse.

In fact, that course was so popular that right now they've made all the materials available

online.

So if you're listening to this, you can actually go and be a part of that course.

We saw it in medicine during the pandemic.

And that's a real big driving force, right, the ability when we're all kind of locked

in our homes, we're all sheltering in place to bring either specialists on board from

different parts of the world to work with doctors remotely for diagnoses to come up

remotely using 3D models.

I know I had knee surgery right before the pandemic and that was done with some type

of metaverse technology, right, where they created a 3D kind of simulation of my knee

and used augmented reality to help repair it, something that would have been unavailable

just a few years before in a new type of procedure.

So we had a number of different forces I think driving interest but one of the other things

is that we had a heavy investment from big publicly traded companies.

So we had all these driving forces and I think a lot of it was experimental.

We didn't quite know how it would work out but that really kind of pushed us in that

direction and the only other thing I would add to that and I think it's absolutely fascinating

is South Korea has taken a huge initiative to push metaverse technology.

So not only are things like classes being held in metaverses but there are actual metaverse

meetings with government leaders and that's how government leaders are meeting with people,

not just tweeting, right, a couple characters of text here and there but actually going

into the metaverse and having kind of that personal experience, political candidates

were having debates in town halls in South Korea in a metaverse, right, where everybody

gets that front row seat to see how their candidate responds.

News was bringing, you know, the news might report on something that's far away, not necessarily

local and you can't see pictures or become immersed in it, right, on TV or reading on

the internet but news stations began taking us into metaverses of places where things

were happening, things they were reporting on.

So there were a number of these different factors that really accelerated it but if

I had to pick one, honestly, it really is the heavy investment by the publicly traded

companies and that's what separates metaverses from the early days of crypto, right.

The early days of crypto was enthusiasts for years, enthusiasts buying and selling Bitcoin

for a dollar or two before it broke into the mainstream.

Publicly traded companies kind of stayed away from it.

Metaverses, publicly traded companies are out in front of it and that is really feeling

it.

Didn't that make sense?

Yeah.

Wow.

Well, Joe, you've done an excellent job explaining an extremely complicated subject where our

listeners and I know myself I've learned a lot today but do you have any parting words

or anything that you may have left out that you feel like the listeners should know about

the metaverse?

Let's see.

You know, it's so it's really hard for me to kind of offer some guidance right now because

it is changing so fast.

Here's the one, if I had to, I'm going to offer a word of warning and then I'll offer

something positive.

How's that?

So here's my word of warning.

Metaverses are designed to be immersive.

They're necessarily designed to be immersive.

They want you to live, breathe and feel, right, what is going on in the metaverse and that,

that's great in many aspects but it's also dangerous.

We've heard, I used to prosecute sexual assault and I know how traumatic, how much damage,

how emotional I can get.

We've heard reports, there's been some widespread reports of individuals who have described

sexual assaults in the metaverse and how real it felt, how very real it felt.

It wasn't like somebody used bad words in a chat room and he could just leave the chat

room and forget it.

It's designed to be an immersive experience.

So that's kind of a word of warning is that the immersion does have the positive side

of it.

You can run, you can play, you can dance, you can do whatever you want to do but it

also means that there are some dangers that come with that.

But on the positive note, these things are full of excitement.

They are changing all the time.

They are cheap.

You don't need a headset and goggles, right?

You can but you don't need one.

When I go into the metaverse, I use a mouse and a keyboard and it's, I can see why a lot

of people really, really enjoy it.

There's just a lot to do, there's a lot of excitement and for the most part, a lot of

good vibes.

Excellent.

And I'm going to echo what Nick said, Joe, this has been a fantastic session.

Really great detail, great job, you know, narrowing it down for us who may not know

a bunch about the metaverse and are genuinely curious and want to learn more.

So excellent job.

I appreciate it.

Thank you again, Joe, for all that fantastic information.

We appreciate you joining us today.

We always like to close our episodes by reminding everyone there's an easy way to find out who

your jurisdiction securities regulator is as well as how to research the background

of anyone making you an investment offer.

Simply visit nasa.org, that's N-A-S-A-A dot O-R-G.

Click the contact your regulator tab located in the top right corner and then select your

jurisdiction's location on the map to find the contact information for your specific

regulator.

Being an informed investor means having a plan and understanding each one of your investments.

Whether you're new to investing or already investing, NASA and its members provide a

variety of educational resources for investors of all ages.

Visit nasa.org for more information on how to be an empowered investor.

Again, that's N-A-S-A-A dot O-R-G.

Thank you both again so much for joining us and more importantly, thank you for the work

that you do each day to protect your state's investors.

That's all for today's episode.

From Middle Tennessee, I'm Rachel Cardin.

And from Montgomery, Alabama, I'm Nick Vongaroo.

If you have any questions about today's podcast or you would like more information about the

topics discussed, please email us at realliferegulators at gmail.com.

That's realliferegulators, all one word, at gmail.com.

And if you'd like to hear future episodes of Real Life Regulators, please hit the subscribe

button.

Thank you very much.

NASA provides its information as a service to investors.

It's neither a legal interpretation nor an indication of a policy position by NASA or

any of its members.

If you have questions concerning the meaning or application of a particular state or provincial