OpenSea Faces Class-Action Lawsuit Alleging NFTs Are Unregistered Securities

Two OpenSea users of the platform have sued the firm in the United States, accusing the token marketplace of offering unregistered securities in the form of NFTs that they lost money on.

OpenSea Users Lawsuit: Exposes NFTs as Unregistered Securities

Two OpenSea users, Anthony Shnayderman and Itai Bronshtein, filed a class-action lawsuit in a Florida federal court on Sept. 19 stating that the leading NFT marketplace is enabling the se of unregistered security tokens. In other words, they argue that when securitizing unlawful purchases, their NFTs are worthless after purchasing them from the OpenSea platform that hosted collections such as the Bored Ape Yacht Club.

All of the cited documents include at least one recent Wells notice, including the most recent one sent to OpenSea by the SEC for violating Section 5 of the Securities Act of 1933, where Shnayderman and Bronshtein attempt to prove that OpenSea could be legally liable for trading unregistered securities. A Wells notice can be said to mean that after making investigations, the SEC will issue enforcement charges on the company in question.

The plaintiffs also watch about other more SEC actions on other NFT projects, Stoner Cats 2, and Impact Theory, where the agency said that the sales of certain specific NFTs constitute unlawful unregistered securities sales.

Howey Test and Allegations

Shnayderman and Bronshtein said that the Howey test, the legal test that defines what can be qualified as a security under the US law, can potentially include some of the NFTs registered on OpenSea. They said that the above mentioned NFTs were investment contracts that were associated with a common pool and that customers had a reasonable expectation of profits from the operation of others.

The lawsuit went on to state that OpenSea’s NFT offerings were also fraudulent, tricking the plaintiffs into buying what the court called “useless and illicit unregulated securities.” The suit also alleges that OpenSea acted wrongfully against their user warranty where it undertook to moderate the exchange of such securities so as not to involve unregistered securities.

In addition, the plaintiffs also pointed out that OpenSea got itself a cut or commission it took on the sales of the tokens even noting that they were unregistered securities.

For example, the legal counsel of the plaintiffs, Adam Moskowitz, the managing partner at The Moskowitz Law Firm added that there is supposed to be an appropriate regulation of NFTs for sale because, in the current society today, the world is evolving so fast. On that, Moskowitz mentioned that the company is keen on working with OpenSea to ensure it creates a safe environment for its consumers and other participants within the crypto market.

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