Ripple CLO Highlights SECs Overreach in Potential OpenSea Lawsuit

• Ripple CLO cites 1976 SEC ruling to defend NFTs as non-securities in the OpenSea case.
• OpenSea receives Wells Notice from SEC, signaling possible securities classification for NFTs.
• SEC criticized for ‘regulation by enforcement,’ impacting innovation in digital assets sector.

Stuart Alderoty, Ripples Chief Legal Officer, warned that the U.S. Securities and Exchange Commission could target OpenSea. He based his argument on a 1976 decision in which the SEC determined that art galleries that market art, which can be viewed as an investment vehicle or art, are exempt from registering as security dealers.

Alderoty suggests this should also apply to non-fungible tokens (NFTs), often traded more like artworks than financial securities. The Ripple CLO argues that precedent should shield OpenSea from any lawsuit classifying NFTs as securities.

OpenSea has received a Wells Notice from the SEC indicating that some NFTs traded on its platform may be securities subject to stricter regulation. CEO Devin Finzer is concerned about an unfair focus on artists and creators, while critics, including influential crypto community members and political figures, view this as overregulation.

Political and Public Backlash

The regulator has also been criticized for its approach, not just by business leaders but even by political figures. U.S. Congressman Wiley Nickel criticized the SECs strategy as one of “regulation by enforcement,” stating that it was eroding trust in the regulatory space and killing innovation in digital assets.

Billionaire entrepreneur Mark Cuban, for his part, has blamed SEC Chair Gary Gensler for much of the haphazard regulatory oversight amid increased frustration from stakeholders within the digital economy.

Regulatory Actions

The most critical debate is whether NFTs should be classified as securities. It could decide how most other digital assets are regulated within the U.S.

An aggressive SEC on these crypto projects, despite previous defeats in court, including cases against firms like Ripple Labs, means that the outcome of any potential lawsuit against OpenSea could have broad implications for the NFT market and beyond.