SEC Issues Wells Notice to OpenSea, Alleging NFTs Are Securities

TLDR:

• OpenSea received a Wells notice from the SEC alleging NFTs on its platform are securities
• CEO Devin Finzer says OpenSea will “stand up and fight” against the SEC’s claims
• The notice comes amid broader SEC crackdown on crypto companies
• OpenSea pledges $5 million to help cover legal fees for NFT creators receiving Wells notices
• Former President Trump launched a new NFT collection the day before the OpenSea news

The U.S. Securities and Exchange Commission (SEC) has taken aim at another major player in the cryptocurrency space, issuing a Wells notice to NFT marketplace OpenSea.

The notice, typically a precursor to formal charges, alleges that non-fungible tokens (NFTs) sold on OpenSea’s platform are securities.

OpenSea CEO Devin Finzer announced the development in a post on X (formerly Twitter) on Wednesday, expressing shock at the SEC’s move and vowing to “stand up and fight” against the regulator’s claims.

Finzer argued that classifying NFTs as securities would “misinterpret the law” and potentially harm hundreds of thousands of online artists and creators.

OpenSea has received a Wells notice from the SEC threatening to sue us because they believe NFTs on our platform are securities.

We’re shocked the SEC would make such a sweeping move against creators and artists. But we’re ready to stand up and fight.

Cryptocurrencies have long…

— Devin Finzer (dfinzer.eth) (@dfinzer) August 28, 2024

The Wells notice to OpenSea is part of a broader crackdown by the SEC on the cryptocurrency industry. In recent months, the regulator has targeted several prominent crypto companies, including Coinbase, Binance, and Kraken, with legal actions or investigations. The SEC’s aggressive stance has led some crypto businesses to consider leaving the United States due to regulatory uncertainty.

OpenSea, once the largest NFT marketplace during the crypto bull market, has faced challenges in recent times. The company laid off 50% of its staff in November and has lost market share to competitors like Blur and Magic Eden.

Despite these setbacks, OpenSea still posted higher sales volume than its rivals in the last 30 days, according to tracker DappRadar.

In response to the SEC’s action, OpenSea has pledged $5 million to help cover legal fees for NFT creators and developers who receive Wells notices.

The company argues that NFTs are “fundamentally creative goods” such as art, collectibles, and video game items, and should not be regulated in the same way as traditional securities.

The SEC’s move against OpenSea comes just one day after former President Donald Trump launched a new collection of NFTs. Trump’s “America First Collection” features digital trading cards showing him in various scenarios, including dancing and wearing a superhero suit.

Trump, who has branded himself as a pro-crypto candidate for the 2024 presidential election, has previously pledged to “fire” SEC Chair Gary Gensler if elected.

The former president has also stated his intention to make the U.S. the “crypto capital of the planet and the Bitcoin superpower of the world.”

The SEC’s action against OpenSea and the broader crackdown on the crypto industry come as NFT sales have declined significantly from their peak in January 2022.

According to data from OpenSea, the volume of NFT sales dropped more than 90% from their peak to August 1 of this year.