SEC Targets OpenSea, Calls NFTs Securities

OpenSea Warned by SEC, NFTs Labeled as 'Securities'

OpenSea, one of the most renowned marketplaces dealing with non-fungible tokens or NFTs, has received a Wells notice from the US Securities and Exchange Commission. The Wells notice was disclosed by the Chief Executive Officer of OpenSea, Devin Finzer, through a post on X, earlier known as Twitter, on Wednesday.

SEC Thinks NFTs Are Securities

This, according to Finzer, is because the SEC wants to sue OpenSea for what the agency perceives to be a security offered and traded in the form of some of the NFTs on the platform. "We're shocked the SEC would make such a sweeping move against creators and artists. But we're ready to stand up and fight," he said.

A Wells notice is a formal warning from the SEC, which lets the recipient know that the agency is considering charging them. By and large, such notices result in enforcement actions, or legal proceedings, from the SEC.

OpenSea's Response and Legal Support

To that, OpenSea's CEO Finzer replied that his platform will dispute the claims made by the SEC. He further announced that his company is allocating $5 million to help offset some of the legal expenses of any NFT creators and developers who may also receive similar notices from the SEC.

Not the First Crypto Company Targeted

This is not the first crypto company to get a Wells notice from the agency. In April, Uniswap was similarly issued a Wells notice from the same agency. It even went ahead to say that Uniswap was acting as an unregistered broker of securities and an unregistered exchange. It is not alone; in the previous months, the SEC has issued similar notices to companies such as Coinbase, Kraken, and Robinhood.

Is NFT Art a Security?

The SEC's move against OpenSea is important because it implies the agency believes NFTs, used to represent digital art and other creative works, are a security. This represents a new, grey area in the regulation of digital assets.

By 2023, the SEC had already filed lawsuits against two NFT projects, Impact Theory and Stoner Cats, for allegedly selling unregistered securities. In both cases, settlements with the SEC were reached. Such moves, together with other legal challenges filed against companies like Dapper Labs, have kept the NFT market speculating. A lot of creators and companies are being very careful; they just wait and see how things will go in terms of the development of rules around NFTs.

For example, in July, the online wagering firm DraftKings pulled the plug on its NFT business, citing "recent legal developments" as the cause. Two NFT artists also recently filed a lawsuit in Louisiana seeking a declaratory judgement that their projects are not securities.

As the situation develops, the judgement in OpenSea's battle with the SEC might have serious consequences for the future of NFTs and the overall digital asset market.