The SEC has issued a Wells notice to OpenSea, indicating it may sue the NFT marketplace for securities law violations, signalling a shift from targeting individual NFT creators to entire marketplaces.
The crypto community criticised the SEC’s action, calling it legally flawed and ridiculous.
OpenSea CEO Devin Finzer argued that classifying NFTs as securities would misinterpret the law and negatively impact artists, collectors, gamers, and innovation within the NFT space.
The Securities and Exchange Commission (SEC) has issued a Wells notice to OpenSea, once the leading marketplace for non-fungible tokens and all types of digital collectibles. The document states that the SEC may sue the company for securities law violations.
The Wells notice against OpenSea is basically a warning of the charges and legal action that may come if the company does not respond immediately. This notice also abruptly shifts from targeting individual NFT artists to whole marketplaces.
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It is also a shift from crypto-focused companies to NFT-focused protocols.
‘Legally Flawed’
Naturally, most in the crypto community deemed the action ridiculous or outrageous. Ji Kim, chief legal and policy officer at the Crypto Council for Innovation (CCI), said it’s “not only legally flawed but utterly ridiculous”.
Scott Melker, crypto investor and host of The Wolf Of All Streets Podcast, said the SEC might as well send a Wells notice to eBay.
OpenSea’s CEO Reacts
In 2022, OpenSea faced an insider trading case involving a former product manager. However, the SEC did not charge the company or classify any NFTs on its platform as securities. In contrast, the SEC did file parallel charges in a similar insider trading case involving Coinbase, alleging that several traded crypto assets were securities.US SEC Delivers Enforcement Warning to OpenSea, Alleges NFTs are Securities
For some reason, the SEC is now lurking in the NFT space to see what it can catch, settling securities violations with two NFT producers, Impact Theory and Stoner Cats. It’s worth noting that Ripple was ordered to pay US$125M (AU$191M) to the SEC, which is just a fraction of what the agency requested initially — US$1.9B (AU$2.80B).US SEC Delivers Enforcement Warning to OpenSea, Alleges NFTs are Securities
All in all, this was a huge L for the SEC — and probably why they’re targeting NFT companies now.
Devin Finzer, CEO of OpenSea, expressed confidence in the platform’s compliance with the law. He said OpenSea is confident that users aren’t trading securities and that the company operates within the confines of the law, adding:
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