Nonfungible token marketplace OpenSea said Wednesday that it received a Wells notice from the U.S. Securities and Exchange Commission, indicating that the government body intends to take pending enforcement action.
Devin Finzer, OpenSea co-founder and chief executive, said on X that the SEC alleged in the warning that NFTs traded on the platform may qualify as unregistered securities. A Wells notice is a letter telling the target of an investigation that the SEC thinks that it broke the law before any rulings are made.
“We’re shocked the SEC would make such a sweeping move against creators and artists,” Finzer said. “But we’re ready to stand up and fight.”
Nonfungible tokens are a type of blockchain-based crypto-asset that provides cryptographic proof of ownership of a kind of digital asset, which can represent digital art, items in video games, collectibles, virtual concert tickets and even domain names.
OpenSea is a popular platform that allows people to create, buy, sell and trade NFTs. It joins a growing list of crypto-asset platforms targeted by the SEC as it gears up enforcement.
The SEC has targeted centralized cryptocurrency exchanges Coinbase Global Inc., Binance Holdings Ltd. and Kraken. The last paid $30 million in fines to settle its lawsuit with the regulator. The SEC also sent a Wells notice to retail trading platform Robinhood Markets Inc. regarding the trading of cryptocurrency on its platform and another notice to the decentralized finance protocol Uniswap Labs.
Finzer noted that the SEC has been cracking down on the industry, but added that “this is a move into uncharted territory.”
“By targeting NFTs, the SEC would stifle innovation on an even broader scale: hundreds of thousands of online artists and creatives are at risk, and many do not have the resources to defend themselves,” Finzer said. “We should not regulate digital art in the same way we regulate collateralized debt obligations.”
In addition to mounting a legal response to the SEC, Finzer said OpenSea will pledge $5 million to cover the legal fees of NFT creators and developers who receive a Wells notice.