NFT marketplace OpenSea has received a Wells notice from the U.S. Securities and Exchange Commission (SEC), indicating the regulator’s intent to pursue an enforcement action.
OpenSea CEO Devin Finzer disclosed the notice on X, saying the SEC believes NFTs on their platform may be considered securities.
“We’re shocked the SEC would make such a sweeping move against creators and artists,” Finzer wrote. “But we’re ready to stand up and fight.”
“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,” he added.
A Wells notice is a preliminary warning that informs recipients of potential charges that may be brought against them, typically leading to enforcement actions.
Finzer stated that OpenSea will contest the notice and has pledged $5 million to cover legal fees for NFT creators and developers who may receive similar notices. He added that “every creator, big or small, should be able to innovate without fear.”
Implications of the SEC’s stance on NFTs
OpenSea’s receipt of a Wells notice suggests that the SEC might consider NFTs as securities, moving into legally uncharted territory. This comes after the SEC took action against NFT projects like Impact Theory and Stoner Cats in 2023, accusing them of violating securities laws. Both cases were settled, but the actions caused uncertainty and concern within the NFT community.
The recent enforcement actions, along with class-action lawsuits against other NFT companies, led to hesitation among creators and businesses. For example, DraftKings recently shut down its NFT business, citing “recent legal developments.”
In his post, Finzer referred to a lawsuit filed by two NFT artists in Louisiana seeking clarification on whether their projects would be considered securities, arguing that regulatory uncertainty could deter creators from producing digital art.
“I hope the SEC will come to its senses sooner rather than later, and that they’ll listen with an open mind,” Finzer added, highlighting the need for regulatory clarity in the rapidly evolving NFT space.
While a recent Supreme Court decision may limit the SEC’s authority over crypto firms, the regulator continues its scrutiny.
The SEC has also pursued actions against other crypto entities, including issuing a Wells notice to Coinbase in March 2023 and scrutinizing DeFi protocol Uniswap and Robinhood for securities violations.
