Lawyer argues SEC notice to OpenSea on NFTs lacks clarity

Oscar Franklin Tan, chief legal officer at Atlas Development, has raised concerns about the United States Securities and Exchange Commission (SEC) issuing a Wells notice to OpenSea.

Tan argues that while non-fungible tokens (NFTs) can be considered securities in some cases, the SEC's recent action against the NFT marketplace lacks clarity and may not be constructive.

On August 28, OpenSea CEO Devin Finzer disclosed that the platform received a Wells notice from the SEC.

A Wells notice is a warning that the SEC may take enforcement action against a company, detailing the regulator's position and allowing the firm to respond.

Tan acknowledges that NFTs could be classified as securities under specific conditions.

For example, if NFTs are created to represent stock certificates that offer dividends, they would likely be treated as securities.

However, he argues that this is not the typical type of NFT found on platforms like OpenSea.

Tan emphasised that while there could be legal grounds to classify certain NFTs as securities, discussions should focus on those specific categories.

"These notices do everything except provide us with clear rules to follow," Tan stated, suggesting that the SEC's actions are not helpful for those trying to comply with Web3 technology regulations.

Tan also pointed out that the lack of clear guidelines from regulators creates uncertainty and could discourage innovation among content creators.

He argued that if a regulator believes any specific category of NFTs should be treated differently, they should establish clear and specific rules.

Tan criticised the broad approach of regulating NFTs as a whole, comparing it to the difficulty of regulating the internet.

He highlighted that the diverse range of NFT use cases requires a more targeted regulatory strategy.

"Regulating NFTs makes about as much sense as regulating the internet," he said, stressing the need for more precise rules.

In response to the SEC's scrutiny of the NFT sector, some artists are seeking clarity on the regulatory framework.

In July, NFT creator Jonathan Mann and filmmaker Brian Frye filed a lawsuit against the SEC to determine which actions might trigger securities laws when selling NFTs.