FameEX Hot Topics | Digital Chamber Urges Congress to Address SEC Actions Targeting NFTs

In August, OpenSea’s CEO reported receiving a Wells notice from the SEC, signaling that the regulatory body might be adopting a new stance on NFTs. This development has prompted the Digital Chamber, a crypto and blockchain advocacy group, to urge the U.S. Congress to pass legislation that clearly defines certain NFTs as consumer products, exempting them from federal securities laws. In a September 10 notice, the Digital Chamber criticized the SEC’s potential actions against OpenSea, calling it an “overreach into the digital asset industry.” While the SEC had not filed a lawsuit at the time, the Wells notice indicated that enforcement action might be on the horizon.

The Digital Chamber is calling on lawmakers to clarify that NFTs should not be categorized as “financial products” or securities under the SEC’s oversight. The group has expressed concerns over SEC Chair Gary Gensler’s regulation-by-enforcement approach, which, combined with a lack of legislative clarity from Congress, places the industry “at risk.” According to the Chamber, many NFTs are not designed to function as investment contracts or speculative financial instruments, even if they are occasionally sold for profit. They liken NFTs to traditional collectibles or artwork, which should be classified as consumer goods rather than securities.

OpenSea’s CEO, Devin Finzer, described the Wells notice received on August 28 as “a move into uncharted territory.” However, enforcement actions targeting NFTs are not entirely new. Other platforms have faced scrutiny, including Dapper Labs, which dealt with enforcement over its NBA NFTs, and DraftKings, which also faced allegations of selling unregistered securities.

In 2023, the SEC charged entertainment firm Impact Theory with conducting unregistered securities sales through its Founder’s Keys NFTs. This case resulted in the company being ordered to pay more than $6 million in penalties.

The SEC’s regulatory approach to NFTs could shift following the 2024 U.S. elections. Republican candidate Donald Trump has pledged to fire SEC Chair Gary Gensler if re-elected, while some speculate that Democratic nominee Kamala Harris could take a different approach from the current Biden administration. The leadership and regulatory focus of the SEC could experience significant changes starting in January 2025, depending on the outcome of the election.

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