What is a 'Wells notice' and why did OpenSea just receive one from the SEC?

By Weston Blasi

NFT exchange OpenSea just received bad news from the securities regulator

What is a "Wells notice"?

On Wednesday, OpenSea Chief Executive Devin Finzer wrote in a social-media post that his NFT company was "shocked" that it had received a Wells notice from the U.S. Securities and Exchange Commission.

A Wells notice is a formal notification from the SEC to inform a person or company that they were involved in a completed investigation by the regulator. The notice is given when infractions have been discovered by the SEC, and it provides the company or individual a chance to address the investigation publicly before any rulings are passed down.

The notification is named after the Wells Committee, an advisory group created in 1972 to review the enforcement practices of the SEC. The group itself was named after the SEC's general counsel at the time, John A. Wells.

Finzer said on X, formerly Twitter, that the SEC is alleging that nonfungible tokens, or NFTs, that are transacted on OpenSea are securities - something that Finzer disagrees with.

"We're ready to stand up and fight," he said, adding: "I hope the SEC will come to its senses sooner rather than later, and that they'll listen with an open mind."

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Essentially, the notice gives OpenSea the opportunity to respond to the investigation before the SEC makes a formal declaration on its findings.

"The SEC does not comment on the existence or nonexistence of a possible investigation," the organization told MarketWatch about the news.

Representatives for OpenSea sent a link to its blogpost titled "Taking a stand for a better internet" when asked for comment.

OpenSea is the latest digital-asset company to be targeted by the SEC over the issue of what classifies as a security.

The agency has argued that cryptocurrencies should be classified as securities and therefore fall under its regulatory purview. Last year, it charged crypto exchange Coinbase Global Inc. (COIN) with illegally operating an unregistered securities exchange, and also sent a Wells notice to online brokerage Robinhood Markets Inc. (HOOD) in May.

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-Weston Blasi

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08-29-24 1035ET

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