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The U.S. Securities and Exchange Commission (SEC) has broadened its regulatory efforts in the cryptocurrency sector by issuing a Wells notice to OpenSea, a leading NFT marketplace. This move suggests that the SEC is considering taking formal action against the platform for allegedly dealing in unregistered securities.
OpenSea’s CEO, Devin Finzer, announced the receipt of the Wells notice in a statement posted on X (formerly Twitter) on Wednesday (Aug. 28). The notice indicates that the SEC is investigating whether the NFTs traded on OpenSea might be classified as securities, a determination that could lead to enforcement action.
“We’re shocked the SEC would make such a sweeping move against creators and artists, Finzer said. “But we’re ready to stand up and fight.” He warned that if NFTs are labeled as securities, it could severely hinder innovation in the digital art space, affecting countless artists and creators who might not have the resources to challenge the SEC’s actions.
“But this is a move into uncharted territory,” he continued. “By targeting NFTs, the SEC would stifle innovation on an even broader scale: hundreds of thousands of online artists and creatives are at risk, and many do not have the resources to defend themselves.”
To support those who might be similarly targeted, OpenSea has pledged $5 million to help cover legal expenses for NFT creators and developers who receive similar notices. Finzer argued that NFTs are fundamentally creative products and should not be regulated in the same way as financial instruments like securities.
“We should not regulate digital art in the same way we regulate collateralized debt obligations.”
DEVIN FINZER
“NFTs are fundamentally creative goods: art, collectibles, video game items, domain names, event tickets, and more,” Finzer writes. “We should not regulate digital art in the same way we regulate collateralized debt obligations… It would be a terrible outcome if creators stopped making digital art because of regulatory saber-rattling.”
The SEC’s move against OpenSea is part of a larger pattern of increased scrutiny on the cryptocurrency industry. This year, the agency has issued Wells notices, filed lawsuits, or reached settlements with several crypto-related companies, including ShapeShift, TradeStation, and Uniswap. Centralized trading platforms like Coinbase, Kraken, Binance, and Robinhood have also been involved in legal disputes with the SEC.
In May, Robinhood disclosed that it had received a Wells notice for its crypto activities. The SEC has also taken legal action against Coinbase and Binance. Recently, a judge in California ruled that the SEC’s case against Kraken would go to trial.
The ongoing legal challenges and uncertainty about the future of crypto regulation in the U.S. have led some companies to consider moving their operations abroad. SEC Chair Gary Gensler has consistently stated that he believes much of the crypto industry falls within the SEC’s regulatory scope and that these lawsuits are necessary to enforce compliance with existing laws. However, many in the crypto community argue that the SEC’s actions have not provided the regulatory clarity they need.
Earlier this year, two NFT creators sued the SEC seeking clarity on the agency’s stance toward NFTs. The case is ongoing, reflecting widespread frustration within the industry over the lack of clear guidelines.
In a related development, the SEC charged the entertainment company Impact Theory with conducting unregistered securities sales involving NFTs earlier this year. The company was fined more than $6 million.
Finzer’s post has received widespread support from the cryptocurrency community. Coinbase CEO Brian Armstrong shared the post on X, writing, “Congrats and welcome to the club! I’m long wells notice companies.” Gemini co-founder Cameron Winklevoss also shared it, stating, “The ‘reset’ with crypto has turned into an expansion of the war on crypto.”
However, some observers noted the irony in OpenSea positioning itself as a champion of creators after it controversially moved to optional creator royalties last year. “OpenSea talking about being shocked there have been sweeping moves made against creators and artists is something,” wrote Deadfellaz founder Betty.
Despite the legal challenges, Finzer remains confident that OpenSea is operating within the law. “I hope the SEC will come to its senses sooner rather than later, and that they’ll listen with an open mind,” he writes.
Editor’s note: This article was written by an nft now staff member in collaboration with OpenAI’s GPT-4o.
