OpenSea said that the U.S. Securities and Exchange Commission (SEC) has abandoned its investigation into the NFT marketplace.
The company was facing a potential lawsuit from the SEC over NFTs being classified as securities. Bloomberg reported on Friday that the SEC told OpenSea that the agency had closed its investigation without taking enforcement action.
SEC issued Wells Notice, but OpenSea resisted NFT securities classification
The development follows a Wells notice issued to the NFT marketplace last August, indicating the SEC’s intent to take legal action. The agency had been investigating whether some NFTs traded on OpenSea’s platform were actually securities, part of its wider push to regulate the crypto industry.
A Wells notice is a formal communication from the SEC that allows the recipient to respond before the agency makes a final enforcement decision. Even though the notice indicated the SEC thought some NFTs might be subject to securities laws, OpenSea had taken the position that classifying them this way would misunderstand the current laws and choke innovation in the space.
Devin Finzer, co-founder and CEO of OpenSea, welcomed the news and said the development is a win for everyone who is making and building in their space. He added that attempting to label NFTs as securities would have set them back. According to Finzer, every creator, no matter how small, should be able to build without undue friction.”
Finzer’s comments echo the views of other NFT and broader web3 community members who have contended that NFTs are primarily a form of digital collectibles and art, not financial securities.
OpenSea had already reserved $5 million in a legal defense fund to help NFT artists and developers who could be scrutinized by the SEC.
Crypto community pushes back as SEC eases NFT and crypto regulations
The SEC’s efforts to define NFTs as securities have been met with a widespread backlash from the crypto community who see such regulation as a barrier to innovation.
For holders and creators of at least some NFTs, the SEC’s decision to close the investigation without enforcement action potentially signals a more lenient approach to enforcement regarding NFTs, which may be a relief for marketplaces, creators, and collectors that have been scrambling to parse existing regulatory guidance.
Meanwhile, in a related development, the SEC has also dropped its lawsuit against Coinbase. The crypto exchange revealed earlier today that the SEC staff had agreed in principle to dismiss the case, subject to final approval by the commissioners.
If formally adopted, the dismissal would be with prejudice, which would bar the SEC from reissuing similar charges against Coinbase in the future and could impact other ongoing legal fights involving other crypto platforms.
The SEC’s decision not to pursue OpenSea any further is a landmark moment for the NFT space and confirms that digital assets as a whole should not be shoehorned into historical securities-based regulation. With OpenSea free from the concerns of regulatory action, creators and developers within the NFT space can focus on innovating as the specter of gory enforcement recedes.
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