OpenSea Faces SEC Wells Notice Threatening to Sue Over Sale of Unregistered Securities on Its NFT Marketplace

OpenSea CEO Devin Finzer tweeted that the SEC was "threatening to sue us because they believe NFTs on our platform are securities."

Non-fungible token (NFT) marketplace OpenSea has revealed that it is facing an enforcement action from the Securities and Exchange Commission (SEC) for allegedly selling unregistered securities on its platform.

OpenSea CEO Devin Finzer took to Twitter to announce the news on August 28. According to Finzer, the SEC is “threatening to sue us because they believe NFTs on our platform are securities.” The OpenSea CEO expressed shock at the SEC’s move, claiming that it would have a negative impact on creators and artists.

“We’re surprised the SEC would make such a sweeping move against creators and artists. Every creator, big or small, should be able to innovate without fear,” Finzer wrote.

However, it’s important to note that the SEC’s investigation is not targeting NFT creators but rather the platform itself, which takes a cut from matching creators looking to sell and buyers looking to flip NFTs for profit.

The SEC has previously gone after commercial NFT issuers, reaching seven-figure settlements last year with Impact Theory and Stoner Cats after charging both with conducting illegal unregistered offerings of ‘crypto asset securities.’ That quoted phrase was recently rubbished by a U.S. federal judge in the SEC’s case against Kraken for operating as an unregistered securities broker. However, the judge said this was “a semantic error” that didn’t undercut the SEC’s case against the digital asset exchange. The judge added that while digital assets were “a relatively novel financial instrument, the principles driving the SEC’s attempt to assert regulatory authority over it are not new.”

Finzer went on to criticize the SEC’s approach, claiming that the regulator is trying to “stifle innovation” and regulate digital art in the same way as complex financial instruments. OpenSea CEO also announced that the platform will be pledging $5 million to cover legal fees for NFT artists and developers that receive a Wells notice.

“The SEC is trying to regulate digital art in the same way we regulate collateralized debt obligations… Every creator, big or small, should be able to innovate without fear. We’re pledging $5M to cover legal fees for NFT artists and developers that receive a Wells notice,” Finzer added.

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