The U.S. SEC issues another Wells notice, OpenSea responds strongly
The battle between encryption and regulation has spread to NFTs.Author: Felix, PANews
On August 28, Devin Finzer, CEO of the NFT marketplace OpenSea, stated that the company has received a Wells Notice from the U.S. Securities and Exchange Commission (SEC), suggesting that enforcement action may be taken.
Devin Finzer mentioned on the X platform that the SEC has issued a Wells Notice, alleging that NFTs traded on its marketplace may be considered unregistered securities, and OpenSea is prepared to "fight" any potential enforcement actions. He also stated that the SEC's targeting of NFTs will stifle innovation on a larger scale, putting hundreds of thousands of digital artists and creators at risk, many of whom do not have sufficient resources to protect themselves.
NFTs are essentially creative goods: artworks, collectibles, video game items, domain names, event tickets, etc., and should not be regulated like mortgage-backed securities. If creators stop making digital art due to threats from regulators, it would be a terrible outcome. Furthermore, Devin Finzer pledged to provide $5 million to help cover the legal fees of NFT creators and developers who receive Wells Notices.
In general, a Wells Notice does not mean that the SEC will immediately file a lawsuit, but it does disclose an investigation into the company. So far this year, the SEC has issued Wells Notices to several crypto companies, including Uniswap, Consensys, and Robinhood. Although a recent Supreme Court ruling may limit the regulatory authority of agencies against crypto companies, several cases are still pending.
Support from All Sides
Following the issuance of the Wells Notice, the response from the crypto industry has been very intense, with nearly unanimous support for OpenSea.
Tyler Winklevoss, co-founder of the crypto exchange Gemini, stated on the X platform: "The SEC is now trying to claim that NFTs are securities. What's next? Baseball cards? Comic books? Gary Gensler (SEC Chairman) is expanding his malicious agenda against cryptocurrencies. Digital Web3 creators and artists are now in the crosshairs."
Sheila Warren, CEO of the trade organization Crypto Council, stated: "The latest round of enforcement regulation is driven by the 'anti-crypto army' led by Gary Gensler. We stand with OpenSea and creators around the world, and we commend Devin Finzer's leadership."
Jake Chervinsky, Chief Legal Officer of Variant Fund, believes that NFTs should not be bound by laws established decades ago (the Securities Act was passed in 1933). "The idea that a financial market regulator established in the 1930s would have jurisdiction over digital art in the 2020s is not only nonsensical but also contrary to the statutory authority of the SEC."
Ryan Sean Adams, co-founder of Bankless, published a lengthy article expressing concerns about the "future of America." "I got into cryptocurrency because I believe it is the greatest freedom technology of our generation. Over the past few years, watching my homeland methodically attempt to stifle cryptocurrency has been one of my deepest disappointments since becoming an adult. Cryptocurrency will be fine; what worries me is the future of America."
Regulation of NFTs Has Already Begun
In fact, regulatory agencies began intervening in NFTs as early as 2023. In 2023, the SEC first charged the entertainment company Impact Theory with selling unregistered securities, marking one of the SEC's first cases involving NFTs. The SEC demanded that the company pay over $6 million in illegal gains, pre-judgment interest, and civil penalties.
SEC Commissioner Hester Pierce stated at the time that: "This enforcement action raises many thorny issues. The Commission should have addressed these issues long ago and provided guidance when NFTs first began to surge."
Additionally, some artists and creators have realized that NFTs are caught in a regulatory gray area in the U.S. In July of this year, two artists who released their works as NFTs filed a lawsuit against the SEC, seeking clarification on whether unregistered digital art would trigger enforcement actions, stating that if they continued to sell their artworks without permission, they would face "the real threat of enforcement action by the SEC." The case is still pending.
One of the artists suing the SEC, Brian Frye, stated: "The Wells Notice against OpenSea is exactly why we filed a lawsuit for a declaratory judgment against the SEC." Another plaintiff (artist) Jonathan Mann expressed a similar view.
"Suing OpenSea is like suing eBay for selling trading cards or suing Sotheby's for selling artworks." "This shows that the SEC's only standard for determining whether something is a security is: Is it on the blockchain?"
