“OpenSea has received a Wells notice from the SEC threatening to sue us because they believe NFTs on our platform are securities,” OpenSea’s CEO Devin Finzer wrote on social media platform X.
“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 added.
Wells notices are preliminary warnings that inform respondents of the charges the regulator is considering bringing against them. They usually lead to enforcement actions.
Finzer said his company will fight the notice and pledged $5 million to help cover legal fees for any NFT creators and developers that may also get such a notice.
“I hope the SEC will come to its senses sooner rather than later, and that they’ll listen with an open mind,” he added.
OpenSea is not the first crypto company to get a Wells notice from the SEC. In April, decentralized crypto exchange Uniswap recieved a Wells notice suggesting the SEC believed the company was acting as an unregistered securities broker and exchange. Similar Wells notices have been directed against crypto exchanges Coinbase and Kraken, and popular trading platform Robinhood (HOOD).
As Finzer pointed out, however, OpenSea’s reciept of a Wells notice is still a move into uncharted territory, because it implies that the SEC considers NFTs to be securities.
In 2023, the SEC brought two enforcement actions against NFT projects – Impact Theory and Stoner Cats – alleging that both projects were breaking securities laws. Both actions led to settlements with the agency.
The enforcement actions against Stoner Cats and Impact Theory, as well as a spate of class action lawsuits against other NFT companies like Dapper Labs, led to a sort of chilling effect in the NFT space as creators and companies wait to find out how they will be regulated. In July, online betting company DraftKings announced that it was shutting down its NFT business citing “recent legal developments.”
In his X post, Finzer pointed to the recent lawsuit filed by two NFT artists in a Louisiana court seeking a declaratory judgment that their projects would not be considered securities.
“It would be a terrible outcome if creators stopped making digital art because of regulatory saber-rattling,” Finzer wrote.
A representative for OpenSea declined to comment beyond Finzer’s Wednesday blog post.
UPDATE (Aug. 28, 2024 at 14:45 UTC): Adds more information.
