Devin Finzer, CEO of non-fungible token (NFT) marketplace OpenSea, reported the company had received a Wells notice from the United States Securities and Exchange Commission, suggesting a potential enforcement action.
In an Aug. 28 X post, Finzer said the SEC had issued the Wells notice, alleging that the NFTs traded on the marketplace may qualify as unregistered securities. The OpenSea CEO said the platform was ready to “stand up and fight” any potential enforcement action.
“[T]his is a move into uncharted territory,” said Finzer. “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.”
The OpenSea CEO added:
“In addition to standing our own ground, we’re pledging $5M to help cover legal fees for NFT creators and devs that receive a Wells notice. Every creator, big or small, should be able to innovate without fear.”
Source: Devin Finzer
The SEC has issued several Wells notices to crypto and blockchain firms to warn of potential enforcement actions related to alleged securities violations. Though a recent Supreme Court opinion could limit the regulator’s authority to crack down on crypto firms, several cases were ongoing at the time of publication.
Regulating NFTs
Many artists and creators have been aware of the regulatory gray area that NFTs fall into in the US. In July, a group filed a lawsuit against the SEC, seeking clarification on whether unregistered digital art could trigger an enforcement action.
In one of its first cases involving NFTs in 2023, the SEC charged entertainment firm Impact Theory with conducting unregistered securities sales. The company was ordered to pay more than $6 million in disgorgement, prejudgment interest and civil penalties.
“[T]his enforcement action raises many difficult questions,” said SEC Commissioner Hester Pierce at the time. “The Commission should have grappled with these questions long ago and offered guidance when NFTs first started proliferating.”
Related: OpenSea ‘insider trading’ trial kicked off in New York district court
In March 2023, the regulator issued a Wells notice to crypto exchange Coinbase for allegedly offering digital assets that could be classified as unregistered securities. The SEC also pursued an enforcement action against Binance, separate from a felony charge involving then-CEO Changpeng Zhao.
Since then, the commission has targeted decentralized finance protocol Uniswap, scrutinizing its developer for potentially acting as a securities exchange or broker without proper registration. The regulator targeted Robinhood in May, focusing on the company’s crypto listings and custodial operations.
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