The U.S. SEC issues another Wells notice, and OpenSea responds strongly

The war between crypto and regulation has spread to NFTs. "Suing OpenSea is like suing eBay for selling trading cards, or suing Sotheby's for selling art." "It shows that the only criterion for the SEC to decide whether something is a security is: Is it on the blockchain?'"

Author: Felix, PANews

Cover: OpenSea

On August 28, Devin Finzer, CEO of NFT market OpenSea, said that the company had received a Wells Notice from the U.S. Securities and Exchange Commission (SEC), suggesting that enforcement action might be taken.

Devin Finzer said on the X platform that the SEC has issued a Wells notice alleging that NFTs traded on its market may be considered unregistered securities, and OpenSea is ready to "fight" any potential enforcement actions. He also said that the SEC's targeting of NFTs will stifle innovation on a larger scale, hundreds of thousands of online artists and creative people are at risk, and many people do not have enough resources to protect themselves.

NFTs are essentially creative goods: artworks, collectibles, video game items, domain names, event tickets, etc. Digital art should not be regulated like collateralized debt obligations. It would be a terrible outcome if creators stopped creating digital art because of threats from regulators. In addition, Devin Finzer has pledged to provide $5 million to help pay the legal fees of NFT creators and developers who have received Wells' notice.

Generally speaking, a Wells notice does not mean that the SEC will immediately file a lawsuit, but the notice discloses an investigation into the company. So far this year, the SEC has issued Wells notices against several crypto companies, including Uniswap, Consensys, and Robinhood. Although a recent Supreme Court ruling may limit the regulator 's power to crack down on crypto companies, there are still several cases pending.

Support from all sides

After the Wells Notice was issued, the crypto industry reacted strongly and almost unanimously in support of OpenSea.

Tyler Winklevoss, co-founder of crypto exchage Gemini, said on X Platform: “The SEC is now trying to claim that NFTs are securities. What’s next? Baseball cards? Comic books? Gary Gensler’s (SEC Chairman) venom against cryptocurrencies is growing. Digital Web3 creators and artists are now in the crosshairs.”

Sheila Warren, CEO of the trade group Crypto Council, said: "This latest round of enforcement regulation is driven by 'anti-crypto operative' Gary Gensler. We stand with OpenSea and creators around the world and applaud Devin Finzer's leadership."

Jake Chervinsky, chief legal officer of Variant Fund, believes that NFTs should not be subject to laws enacted decades ago (the Securities Act was passed in 1933). "The idea that a financial market regulator established in the 1930s will have jurisdiction over digital art in the 2020s goes not only against common sense, but also against the statutory authority of the SEC."

Ryan Sean Adams, co-founder of Bankless, published a long article expressing his concerns about the "future of the United States." "I got involved in the field of cryptocurrency because I believe it is the greatest freedom technology of our generation. Over the past few years, seeing my home country methodically trying to stifle cryptocurrency has been one of the deepest disappointments of my adult life. Cryptocurrency will be fine, and I am worried about the future of the United States."

Regulation of NFTs has already begun

In fact, the monitoring agency began to intervene in NFT as early as 2023. In 2023, the SEC first accused the entertainment company Impact Theory of conducting unregistered securities sales, which was one of the first cases involving NFTs handled by the SEC. The SEC required the company to pay more than $6 million in illegal gains, pre-judgment interest, and civil penalties.

“This enforcement action raises many difficult questions,” SEC Commissioner Hester Pierce said at the time. “The Commission should have long ago addressed these questions and provided guidance when NFTs first began to proliferate.”

In addition, some artists and creators are aware that NFTs are caught in a regulatory gray area in the United States. In July, two artists who released their works in the form of NFTs filed a lawsuit against the SEC, seeking clarification on whether unregistered digital art would trigger enforcement actions, and claimed that if they continued to sell art without permission, they would face "real threats of enforcement actions by the SEC." The case is still under trial.

Brian Frye, one of the artists suing the SEC, said: "This Wells Notice against OpenSea is exactly why we filed a declaratory judgment lawsuit with the SEC." Another plaintiff (artist) Jonathan Mann expressed the same view.

“Suing OpenSea is like suing eBay for selling trading cards, or Sotheby’s for selling art,” he said. “It suggests that the only criterion the SEC uses to decide whether something is a security is: ‘Is it on a blockchain?’”

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