OpenSea CEO Devin Finzer announced that the company has received a Wells Notice from the US Securities and Exchange Commission (SEC) as the regulator considers NFTs on its platform securities.
In an August 28 statement on X, Finzer expressed surprise at the SEC’s broad action against creators and artists. He stated:
“We are shocked that the SEC would take such drastic action against creators and artists. But we are ready to stand up and fight.”
$5 million fund
Finzer emphasized that the SEC’s move enters uncharted territory. He warned that targeting NFTs could undermine innovation on a larger scale, putting the livelihoods of hundreds of thousands of online artists and creators at risk.
He also noted that many do not have the means to defend themselves. As a result, OpenSea is pledging $5 million to cover legal costs for NFT creators and developers who receive a Wells Notice from the financial regulator.
Finzer argued that NFTs are fundamentally creative products, including art, collectibles, video game items, domain names and event tickets. He asserted that digital art should not be regulated like financial instruments such as collateralized debt obligations.
OpenSea’s CEO expressed concern that regulatory threats could deter creators from creating digital art.
Wells notices
The Wells Notice issued to OpenSea signals an ongoing crackdown by digital asset regulators in the US.
Jonathan Mann, aka Songadaymanrecently filed a lawsuit against the SEC regarding the potential treatment of NFTs as securities. He is concerned that the SEC’s approach could undermine creativity and innovation. He told it CryptoSlate,
“This is exactly why we are filing a lawsuit. Supervision by enforcement does not work. It’s so unfair.”
A Wells Notice is a preliminary announcement from the SEC indicating its intent to recommend enforcement action. This notice allows the recipient to respond before charges are formally proposed.
Over the past year, the SEC has issued similar notices to several crypto-related companies, including Robinhood, Paxos and Uniswap Labs. However, the notice to OpenSea is the first to an NFT-related company, showing that the regulator is keeping a close eye on the NFT markets.
The outcome of this case could set an important precedent for how NFTs are treated under U.S. securities law, potentially affecting a wide range of digital artists and collectors.