OpenSea Received Wells Notice from SEC Alleging NFTs as Securities
OpenSea, one of the leading NFT marketplaces, is preparing for a lawsuit with the United States Securities and Exchange Commission (SEC). The platform's co-founder and CEO, Devin Finzer, revealed on Wednesday that the company has received a Wells Notice from the SEC, signaling the regulator's intent to bring enforcement action against the platform. The central issue: whether NFTs, or non-fungible tokens, should be classified as securities.
Finzer announced, "OpenSea has received a Wells Notice from the SEC threatening to sue us because they believe NFTs on our platform are securities. We're shocked the SEC would make such a sweeping move against creators and artists. But we're ready to stand up and fight."
The potential lawsuit raises questions about which NFT collections on OpenSea might be targeted. The marketplace hosts a vast array of digital assets, from independent on-chain artworks to high-profile profile picture (PFP) projects like CryptoPunks and Bored Ape Yacht Club, both of which have attracted significant speculative interest and high valuations. Despite this, neither the SEC nor OpenSea has provided specific details about the collections under scrutiny.
In response to the SECâs actions, OpenSea has pledged $5 million to cover legal fees for NFT artists and developers who might also face similar challenges from the regulator. Finzer emphasized that this fund is intended to support creators who could be unfairly targeted, ensuring they can continue innovating without fear of legal repercussions.
This isnât the first time the SEC has pursued an NFT-related case. Last September, the agency settled with the creators of Stoner Cats, an NFT-based cartoon series, for $1 million. The SEC's reasoning in that case revolved around the creatorsâ promotion of the NFTs as resellable assets, which the regulator interpreted as a sign of their potential as unregistered securities.
However, the application of securities law to NFTs is fraught with complexity. Critics argue that NFTs, particularly those representing digital art, are more akin to collectibles or fine artâcategories that have never fallen under SEC regulation. Brian Frye, a law professor at the University of Kentucky specializing in NFTs and securities law, challenged the SECâs stance, stating, "The NFT market is identical to the art market, which existed long before the SEC was created and which the SEC has never regulated. If the SEC thinks the art market is a securities market, it should say so and try to regulate it. If not, it should leave OpenSea alone."e