Oscar Franklin Tan, Chief Legal Officer at Atlas Development, has voiced strong criticism of the recent Wells notice issued by the U.S. Securities and Exchange Commission (SEC) to OpenSea, arguing that it fails to provide clear regulatory guidelines for the NFT sector.
On August 28, OpenSea CEO Devin Finzer announced that the company had received a Wells notice from the SEC, which asserts that NFTs traded on their platform could be classified as securities. A Wells notice is a formal communication from the SEC that indicates potential enforcement action against a company, providing an opportunity for the firm to respond to the allegations.
Tan discussed the nuanced issue of whether NFTs can be considered securities. He acknowledged that, under certain conditions, NFTs might resemble securities, particularly when they function as investment products. Tan offered an example: “If I mint stock certificates as NFTs and offer dividends, those clearly resemble securities. But this is not the typical NFT you’d find on OpenSea or similar marketplaces.”
Tan emphasized that while there might be valid grounds to classify specific types of NFTs as securities, the SEC’s current approach is unhelpful. He criticized the Wells notice for lacking clarity and failing to provide definitive guidelines for the emerging Web3 technology. “These notices only create confusion and do not offer any clear rules,” Tan remarked. “They are counterproductive and primarily impact those who are trying to navigate the rules and build communities properly.”
Tan characterized NFTs as a versatile technology with various applications. He argued that regulatory vagueness could deter content creators and hinder innovation. “If a regulator believes certain NFTs require special treatment, they need to establish clear and specific rules,” he said. “For instance, if I mint a selfie as an NFT and distribute it, I should be able to do so without undue restriction. That’s the essence of technological freedom.”
The legal expert also highlighted that regulating NFTs in a broad manner is impractical, likening it to trying to regulate the entire internet. “It’s akin to regulating the internet itself,” Tan explained. “Such broad regulation is ineffective without specific targets—whether it’s payments, pornography, e-commerce, or other categories.”
Amid ongoing regulatory scrutiny, some in the NFT space are seeking clarity. On July 30, attorneys representing NFT creator Jonathan Mann and filmmaker Brian Frye filed a lawsuit against the SEC, aiming to determine which actions related to NFT sales could trigger securities laws.
Tan’s critique underscores the need for more precise regulatory frameworks that accommodate the diverse uses of NFTs while fostering innovation rather than stifling it.
