In recent news, the SEC is expanding its regulatory scrutiny towards NFTs
In a recent Wells Notice against OpenSea, the agency is planning to sue the marketplace soon over its listing of possible securities.
The SEC has remained mute over which NFTs it plans to tag as securities, leading to much speculation.
Whatever the outcome of the case, it could have massive implications for the crypto and NFT space, with more digital art pieces likely to be targeted next.
In one of the biggest developments this week, the “Securities classification” is slowly expanding from the crypto realm to that of NFTs.
As it turns out, OpenSea, one of the largest NFT marketplaces, is now expecting a lawsuit from the US Securities and Exchange Commission.
This lawsuit, according to Devin Finzer, OpenSea’s co-founder and CEO, alleges that some of the NFTs listed on the marketplace might qualify as unregistered securities.
This newly emerging trend of NFT-based securities (which have mostly been treated as regular art) is set to change a lot within the industry, and here are all the details to be aware of.
The SEC’s regulatory scrutiny is no new development. The agency has gone after several cryptos and crypto-affiliated companies in the past, causing dozens of lawsuits and forcing some businesses to shutter their operations.
However, this move towards the NFT space is a first.
This week, OpenSea received a Wells Notice from the SEC—which is a formal alert notifying the former that the regulator has concluded an investigation and is planning to sue soon.
In a recent tweet, Finzer expressed shock and disappointment at the SEC, calling the Wells notice a “move into uncharted territory”.
"We're shocked the SEC would make such a sweeping move against creators and artists," Finzer said, before adding, "We (OpenSea) are ready to stand up and fight."
This move against NFTs is one of the few cases where the agency alleged that digital art can be considered securities.
While the agency has had success so far with hounding crypto and crypto exchanges, this recent development shows that regulatory scrutiny of the Web3 space is escalating.
Interestingly, the SEC (or Finzer) did not indicate which NFTs on the marketplace might be the actual securities the regulator aims to target.
The SEC, in particular, has remained tight-lipped about the specifics amid criticism from several industry commentators and leaders.
US politician Greg Kidd, for example, calls the SEC's actions an "overreach."
On the other hand, Justin Blau, the founder of Royal Music, said that “the SEC continues to demonstrate its deep misunderstanding of formative technologies.”
The SEC’s misunderstanding of NFTs
While there are no clear indicators of which NFT collection the SEC aims to go after, OpenSea holds a wide range of these digital art pieces, from on-chain artworks by independent artists to digital and even physical collectables.
This diversity alone makes it impossible to predict which NFTs count as securities.
Interestingly, this isn’t the first time that the agency has taken legal action against NFTs.
In September last year, the SEC went after the team behind “Stoner Cats," an NFT-based cartoon series produced by actress Mila Kunis.
Eventually, the lawsuit ended in a $1 million settlement.
This most recent Wells Notice against OpenSea is expected to be even longer and more elaborate as the future of centralized NFT marketplaces hangs in the balance.
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