It appears that the US Securities and Exchange Commission (SEC) is spreading its crypto enforcement to cover NFTs as OpenSea has been handed a wells notice by the financial regulator.
The NFT marketplace confirmed it had received a notice by the SEC last week outlining that the agency intends to pursue enforcement action. This was revealed by OpenSea because the SEC deems NFTs on its platform to be classed as securities.
Devin Finzer, CEO of OpenSea, stated in a blog post: “OpenSea recently received a Wells notice from the US SEC. This notice indicates that the SEC is considering bringing a lawsuit against OpenSea.
“We’re confident that OpenSea operates legally and that our users aren’t trading securities when they buy or sell NFTs using our platform. Our users engage with NFTs for many reasons, like purchasing a gaming item or avatar to use in a game, supporting a beloved artist, or boasting allegiance to their chosen sports team.”
OpenSea is the largest NFT marketplace currently and was a major player during the initial NFT boom period between 2020-2021. NFTs have subsequently significantly declined in value and usage ever since 2022.
Due to its close proximity to crypto – as NFTs can be traded with a majority of popular cryptocurrencies – it may come as no surprise to many within the sector that the SEC is pursuing legal charges against NFTs.
This is due to the SEC’s long running stance on crypto, deeming it a financial security and therefore should be registered in accordance with SEC rules and regulations. This stance has led to the financial agency hitting many crypto exchanges, such as Binance and Coinbase with lawsuits.
Despite OpenSea being the first NFT marketplace to be hit with such legal action, this does not mark the first time the SEC has taken aim at NFTs.
Last year, the US financial regulator took enforcement action against Impact Theory and Stoner Cats, two NFT projects that the SEC alleged were breaking securities laws. Both eventually settled with the SEC.
The OpenSea is however much larger in scale due to the platform’s leading position in the sector.
Finzer has since stated that the company is willing to place up to $5m in legal fees to defend itself from the eventual enforcement action. He also states that NFTs being viewed as securities “jeopardise artists’ livelihoods”.
He said: “Classifying NFTs as securities would not only misinterpret the law, but it would also jeopardise artists’ livelihoods, disempower collectors and gamers, and stifle innovation across the many promising use cases for NFTs.
“This is a slippery slope: if NFTs like those displayed on OpenSea are classified as securities, where does it stop? What’s to prevent non-NFT collectibles, like, say, physical or digital baseball cards, from being lumped in as well? Or physical or digital fine art?”
