When OpenSea blogged about a notice Wells received from the Securities and Exchange Commission (SEC), thousands of supporters immediately rallied. OpenSea sent the actual letter behind and sent out a response deploring the SEC’s alleged targeting of NFTs.
The statement claimed that “classifying NFTs as securities would not only misinterpret the law but also endanger the livelihoods of artists.” It also warned of the commissioners’ supposedly “harmful impact on consumers, creators and entrepreneurs.”
An uproar ensued. Crypto promoters couldn’t agree more passionately with OpenSea’s blog and were more than happy to accept its characterization of the facts. They tweet their opinions to millions of viewers.
- “I think Gary Gensler thinks NFTs are securities after all,” Bankless wrote, putting words in the chairman’s mouth.
- “The SEC is now trying to claim NFTs are securities,” tweeted Tyler Winklevoss, which got 225,000 views.
- The CEO of OpenSea blatantly claimed about the SEC: “they believe NFTs on our platform are securities.”
- “If NFTs are securities, anything collectable is a security. And that is clearly not the law,” wrote a lawyer who should know better.
As with so many fake news events over the past month, it probably never happened.
Fake news again: NFTs as securities
As the SEC has reiterated unequivocally on its website, in public speeches, on social media, and in hundreds of lawsuits: anyone can sell any asset as an investment contract by trying to use other people’s money for the promise of profit.
US courts have found investment contracts involving orange groves, whiskey, condominiums, gas leases, payphones and various other items.
For decades, numerous U.S. judges have reiterated this arbitrary treatment of the assets involved in an investment contract. It’s not about the item, it’s about the promises, financial projections and the economic reality of the sale. The offer, not the asset, creates the investment contract.
A week ago, a U.S. district judge reiterated this point clearly: “common assets – such as gold, silver and sugar – can be sold as investment contracts, depending on the circumstances of those sales.”
In “SEC v. WJ Howey Company,” the Supreme Court explained how sellers can transform any property whatsoever in an investment contract by asking for a monetary investment in a joint venture that seeks to benefit from the indispensable managerial or entrepreneurial efforts of others.
With that statement, the Howey Test was formed 78 years ago. American courts have consistently upheld this for decades.
Selling a non-security through a security offering
For example, in a Howey lawsuit “Hocking v. Dubois,” someone sold a condominium, which is a house and clearly not collateral in itself. as a security offer. The judge agreed that the seller had a investment contract by adding various financial guarantees to the buyer.
Similar examples abound in Howey’s posterity: the investment contract — not the asset involved in the investment contract — is safety.
This simple, clear rule of law makes the tweets from OpenSea’s CEO and other NFT influencers infuriating this week.
The law is easy to understand, but crypto promoters in 2024 are still blithely claiming — ignoring 78 years of legal precedent — that the SEC wants to classify entire classes of crypto assets like NFTs as securities. That is not the case.
Read more: Fake news again! This time it’s Kamala Harris and ‘unrealized crypto profits’
The SEC has not classified all NFTs as securities
The SEC has never claimed that all NFTs are securities. For years, commissioners have reiterated that Congress and the Supreme Court had given the SEC the job of regulating the supply and sale of securities, to “protect investors by requiring the disclosure of material information deemed necessary to enable them to make informed investment decisions.”
If the SEC wants to charge a specific person or company for failing to disclose information to investors prior to the sale an investment contract involving an NFT (as it has done in the past) that is the mandate of Congress. However, NFTs themselves are as inconspicuous as sugar, gold, silver, whiskey, condominiums, or pay phones.
NFTs themselves are simple items that sellers can offer as regular assets, or, if they add financial guarantees, as an investment contract.
The fake news trend continues. Throughout the month of August, crypto influencers have been hysterically tweeting about events that never happened.
Protos has reported fake news about California’s adoption of bitcoin, fake Palestinian persecution at Binance, a fake policy change by Kamala Harris, CZ’s fake release from the prison system, a fake unrealized tax on crypto profits, the fake Gary Gensler’s job change, and a conspiracy theory about Solana and the CIA.
Add the false classification of NFTs as securities to that list.
