On August 28, 2024, Devin Finzer, co-founder and CEO of NFT marketplace OpenSea, publicly spoke about receiving a Wells notice from the U.S. Securities and Exchange Commission (SEC) in a post on social media platform X, formerly known as Twitter. Finzer revealed that the SEC had threatened legal action against OpenSea on the grounds that the NFTs available on the platform could be considered securities.
A Wells Notice is a formal notification from the SEC to an individual or company advising that the SEC plans to take enforcement action against them for alleged violations of securities laws. The notice gives the recipient an opportunity to respond and present their case before the SEC makes a final decision on whether to proceed with enforcement action.
Essentially, it is a warning that the SEC believes there may be enough evidence to file a lawsuit or impose penalties, but the recipient has an opportunity to argue why the action should not be taken. The notice is part of the SEC’s due process to ensure fairness before formal charges are filed.
Finzer expressed his dismay at the SEC’s decision and emphasized the magnitude of the potential impact. He criticized the SEC’s actions, stressing that it was a sweeping move against a wide range of creators and artists who use the OpenSea platform. Finzer firmly stated that OpenSea is ready to defend itself and fight against these allegations.
In his post, Finzer placed this action in the broader context of the SEC’s ongoing scrutiny of the cryptocurrency industry. He noted that various notable companies in the space, such as Coinbase, Uniswap, Robinhood, Kraken, and ConsenSys, are locked in battles against what he called the SEC’s “single-track approach, regulation through enforcement.” Finzer pointed out that this approach has now moved into new and uncharted territory by targeting NFTs, a move he believes could hamper innovation across the board.
According to Finzer, the SEC’s stance threatens not only OpenSea but also the livelihoods of hundreds of thousands of online artists and creatives. He expressed concern that many of these individuals may lack the necessary resources to defend themselves against such regulatory actions. Finzer argued that NFTs should be recognized as fundamentally creative goods, citing examples such as art, collectibles, video game items, domain names, and event tickets. He emphasized that it would be inappropriate to regulate digital art in the same way as financial instruments such as collateralized debt obligations.
Finzer also shared the significant positive impact NFTs have had on many people’s lives. He shared stories from OpenSea’s history, highlighting student artists who have been able to transition into full-time careers by selling their digital art. He also mentioned indie game developers who have benefited from the ability to create open markets for their in-game items without having to build marketplaces from scratch. Additionally, Finzer highlighted the formation of passionate collector communities from around the world, all centered around shared digital ownership.
Finzer expressed concern about the potentially chilling effect the SEC’s actions could have on the digital art community, citing a lawsuit filed against the SEC by musician Jonathan Mann (@songadaymann) and conceptual artist Brian L. Frye (@brianlfrye), both of whom have expressed concern that their sale of art and music could be viewed as an unregistered securities offering.
In response to these concerns, Finzer announced that OpenSea is not only making its point but also taking proactive measures to support the broader NFT community. He pledged $5 million to support NFT creators and developers who receive a Wells notification, ensuring that all creators, regardless of size, have the opportunity to innovate without fear of regulatory consequences.
Finzer concluded his statement by expressing hope that the SEC will reconsider its approach. He urged the regulator to listen with an open mind and come to its senses sooner rather than later. Until then, OpenSea will continue to advocate for the industry and its creators, Finzer reiterated.
Featured image via Pixabay
