Launchy Regulatory Roundup #4 - SEC Believes NFTs are Securities

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Welcome to our fourth edition of the regulatory roundup. If you know anybody who would benefit from this content, please help us spread the word!

In desperation, the SEC issued a Wells notice to OpenSea, alleging that the NFTs on the marketplace are unregistered securities. Gary Gensler is dancing his last waltz, oblivious to the music playing.

In Today's Edition:

• Headline: SEC targets OpenSea 🖼️

• Global Legal Roundup: FTX reorganization, Abra vs SEC, FCA rules, etc.

• Case Study: Law firms earn $750M from crypto 💼

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HEADLINE

SEC Targets OpenSea with Wells Notice

State of play: Devin Finzer, co-founder and CEO of OpenSea, revealed that the company received a Wells notice from the US SEC, accusing the NFTs traded on the platform of potentially qualifying as unregistered securities.

• Finzer said that OpenSea will fight the SEC while also pledging $5M to help cover legal fees for NFT creators and devs that receive a Wells notice.

• In July, a group of artists filed a lawsuit against the SEC, seeking clarity on whether unregistered digital art could prompt enforcement actions.

• In 2023, the SEC charged Impact Theory with unregistered securities sales involving NFTs, resulting in a $6 million penalty.

• SEC Commissioner Hester Pierce criticized the action, noting the need for earlier guidance on NFTs.

• The SEC has since issued a Wells notice to Coinbase for allegedly offering unregistered securities and pursued actions against Binance, Uniswap, and Robinhood for potential securities violations.

The SEC's recent action has sparked a backlash within the crypto community, drawing widespread criticism.

• Oscar Franklin Tan, the chief legal officer of Atlas Development, argued that while some NFTs may be considered securities, the SEC's approach lacks clarity and risks hindering innovation.

• He believes the focus should be on specific categories, not broad generalizations, to avoid stifling content creation and experimentation.

• Ji Kim of the Crypto Council for Innovation (CCI), called the SEC's assertion that NFT platforms should be regulated as securities exchanges "not only legally flawed but utterly ridiculous."

• Katherine Minarik, the chief legal officer at Uniswap Labs, echoed these sentiments, stating, "If NFTs are securities, everything collectible is security. And that's not the law."

• Rep. Wiley Nickel criticized the SEC's approach on X, calling for clear regulations that promote innovation and job growth in the US.

What’s Next: In pursuing this, the SEC only embarrasses themselves and leaves a significant mess for the next administration to clean up.

Why it Matters: SEC actions will not just hinder creativity and innovation but will also push web3 companies away from the US.

Our Take: This is another example of why the US and the world need to provide clarity in the regulation around Web3 technology, to prevent a witch hunt that will harm and hinder innovation and creativity.

GLOBAL LEGAL ROUNDUP

🇺🇲 US Exchanges Push for Crypto Options

Nasdaq and Cboe are seeking regulatory approval for Bitcoin and Ether-related options, signaling a growing interest in crypto derivatives in the US.

• Nasdaq is seeking SEC approval for Bitcoin index options based on futures.

• The proposed Bitcoin Index Options would be based on the CME CF Bitcoin Real-Time Index developed by CF Benchmarks.

• Cboe files amended applications to list Bitcoin and Ethereum options directly on spot crypto ETFs.

• Bloomberg predicts spot BTC options could launch in Q4, while the SEC's stance on spot Bitcoin ETF options remains unclear.

• Crypto derivatives continue to gain traction in the US, with open options interest on BTC futures ETFs surpassing $3.25B as of August 9th.

🇺🇲 US Trustee Challenges FTX's Reorganization Plan

The US trustee overseeing FTX's bankruptcy proceedings has challenged the exchange's amended reorganization plan, citing concerns about excessive legal protections, unequal creditor treatment, and data breach cost handling.

• The trustee argues the plan gives too much legal immunity to estate administrators and advisers.

• Smaller creditors would receive a lower percentage of reimbursement than larger ones, which the trustee deems unfair.

• Creditors are demanding the ability to receive cryptocurrency instead of its cash equivalent to avoid potential tax implications.

🇺🇲 Abra Settles SEC Charges Over Unregistered Securities

Abra has settled with the SEC over allegations of unregistered securities related to its Abra Earn service.

• The firm agreed to pay civil penalties and comply with securities laws.

• Abra discontinued the Earn service in 2022 and transferred US user assets to Trade accounts in 2023.

• This follows a previous settlement with state regulators and a 2020 fine for offering unregistered swaps.

🇨🇳 Chinese Crypto Data Platform Feixiaohao Under Investigation

Feixiaohao, a major Chinese cryptocurrency data provider often called the "Chinese CoinGecko," is reportedly under investigation by local police.

• Several key executives at Feixiaohao have been allegedly arrested as part of an ongoing investigation.

• The specific reasons for the investigation remain unclear, though it has been ongoing for over six months.

• Despite the reports of arrests and investigations, Feixiaohao's website remains active and continues to post new articles.

🇬🇧 FCA's Slow Crypto Registration Process Raises Concerns

The UK's Financial Conduct Authority (FCA) takes an average of over a year to process crypto firm registrations, causing delays and raising concerns about the UK's competitiveness as a crypto hub.

• The average processing time for crypto firm registrations is 459 days, hindering the UK's ambition to become a crypto hub.

• The number of applications is decreasing, suggesting that firms might be giving up and looking abroad for registration.

• While the falling number of applications could mean firms are better understanding FCA expectations, it also raises concerns about losing potential business to other jurisdictions.

🇳🇿 New Zealand Proposes Crypto Reporting Framework

New Zealand's Minister of Revenue has proposed implementing the OECD's Crypto-Asset Reporting Framework (CARF).

• Starting April 1, 2026, crypto service providers in NZ will be required to collect and report user transaction data to the Inland Revenue.

• The Inland Revenue will then share relevant information with tax authorities worldwide.

• This aims to ensure profits from crypto trading are properly taxed.

• Service providers failing to meet CARF requirements face fines of up to NZ$100,000 ($62,000).

• Users not providing necessary information can be fined NZ$1,000 ($621).

🇭🇰 HKMA's Project Ensemble Sandbox Expands Asset Tokenization Testing

HKMA launched the Project Ensemble sandbox to study RWA tokenization and interbank settlement using a wholesale CBDC focusing on fixed income, liquidity management, green finance, and trade finance.

• Major banks and regulators are collaborating, with HSBC, Standard Chartered, and the SFC playing key roles.

• The project has already seen real-world applications, with Ant Group digitizing assets for Longshine Technology Group.

• This sandbox builds on previous projects involving tokenized deposits and e-HKD CBDC settlement.

🇯🇵 Japan Boosts Web3 Growth with Tax Reforms

Japan aims to boost its Web3 industry with tax reforms supporting crypto startups. Minister Takeru Saito believes these reforms will create a more attractive environment for global businesses and developers.

• Japan's focus on Web3 also extends to solving social issues.

• Prime Minister Fumio Kishida views technology as a foundation for addressing societal challenges.

• The country is seeing rising crypto adoption, with over half of institutional investors surveyed planning crypto investments in the next three years.

🇰🇷 Haru Invest CEO Stabbed in Court During Fraud Trial

Haru Invest CEO Hugo Hyungsoo Lee was stabbed multiple times in the neck during a fraud trial in Seoul.

• The attacker, reportedly a victim of the alleged fraud, sprang from the guest seat and used a small knife. Lee's injuries are not life-threatening.

• Haru Invest is accused of stealing $826M in crypto from users, and three executives, including Lee, were previously arrested but later released.

• This incident highlights the growing trend of physical attacks related to digital assets.

More Regulatory Updates:

• SEC’s case against Kraken heads to trial.

• SEC charges brothers in $60M crypto ponzi scheme.

• Nigeria’s SEC issues the first license to a local crypto exchange.

• Indian court orders takedown of websites impersonating Mudrex.

• Thai authorities bust illegal Bitcoin mine linked to power outages.

• HK regulator flags issues at some crypto firms seeking full licenses.

CASE STUDY

Law Firms Earn $751M from Crypto Bankruptcies

State of play: Crypto bankruptcies have resulted in millions in losses for investors, but also generated over $750M in fees for law firms handling high-profile cases.

Four major law firms - Sullivan & Cromwell, Kirkland & Ellis, White & Case, and Cleary Gottlieb - earned $484M, representing 64% of all fees requested and received.

• Sullivan & Cromwell earned the most at $215M for their work as FTX's debtor's counsel.

• Kirkland & Ellis billed $120M, primarily from their work with Celsius, Voyager, and BlockFi.

• White & Case earned about $75M from the Celsius and Genesis cases.

• Cleary Gottlieb billed nearly $73M as Genesis' lead counsel.

Our Take: While investors suffer immense losses, law firms profit handsomely from crypto bankruptcies.

• This disparity fuels criticisms of the industry's lack of regulation, highlighting the urgent need for clearer guidelines and protections.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our comprehensive database of crypto regulations around the world👇

NOTEWORTHY READS & MEME

• Gabriel Shapiro read on the value of BORGs.

• Forbes read on how SEC’s attack harms creators.

• Scott Kominers read about how NFT creates much social value.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.