TheChek News Flow

Move comes amid concerns that supply from Russia to Europe could be disrupted

Regulators in Brussels have halted an antitrust probe into QatarEnergy, according to two people briefed on the matter, three years after the European Commission opened an investigation into the company’s 20-year gas contracts.

The decision comes amid concerns that gas supplies from Russia to Europe could be disrupted if the Kremlin decides to invade Ukraine. Talk of a Russian attack has increased scrutiny on Europe’s energy security and its dependence on Russia, which supplies about 40 per cent of the continent’s gas.

The people said the move was not connected to the tensions. One person briefed on the discussions said the EU first considered dismissing the case last year as “the EU and the UK realised that they were facing energy poverty” when a gas shortage sent prices rocketing. This was prior to the Russian crisis.

The US has in recent weeks asked Qatar, the world’s largest exporter of LNG, if it would be able to help fill any shortfall if supplies to Europe are disrupted. Qatar is one of the few gas producers that has the capacity to help if supplies are disrupted. But it would need the consent of its Asian clients, the biggest buyers of Qatari LNG, to divert gas to Europe.

In 2018, the commission opened an investigation to investigate whether supply agreements between Qatar Petroleum — now QatarEnergy — and European importers “have hindered the free flow of gas within the European Economic Area, in breach of EU antitrust rules”.

Since then, Brussels has engaged in “extensive fact-finding” to find out if certain clauses contained in those deals may prevent or limit the resale of LNG within the internal market, in breach of EU law, said a spokesperson for the commission.

The probe into its contracts had frustrated QatarEnergy, which prefers long-term fixed contracts, and caused it to delay projects in France and Belgium.

Late last year when a global shortage of gas sent prices soaring, Saad al-Kaabi, Qatar’s energy minister, told the Financial Times that Europe needed to “give a clear signal” about whether “they want more investment in gas and additional supply from Qatar or not”.

The minister, who had a virtual meeting with the EU’s energy commissioner this month, said the case had “no basis”.

“We have mixed signals from Europe,” he added. “We need to understand if we are welcome in Europe, or not welcome.”

Asked about a Reuters report that the probe had been dropped, an official at the commission said: “The in-depth investigation is ongoing. We cannot prejudge its timing or outcome.”

Sentiment sours but spending is robust in the face of rising inflation

Some of the world’s largest consumer brands have warned of rapidly rising input costs which they are passing on to customers in a bid to protect their profits as surging inflation pushes up households’ expenses.

Executives said that US consumers, bolstered by higher wages and savings, have thus far been willing to spend more.

Companies including PepsiCo, McDonald’s and breakfast cereal maker Kellogg all flagged the impact of higher labour, shipping and commodity costs and the pandemic’s disruption to supply chains and the workforce during the latest corporate earnings season.

“US businesses have managed to do something never before accomplished, which is to lump four years’ worth of price increases into one,” said David Rosenberg, chief economist and strategist at Rosenberg Research.

The fresh price pressures come as inflation is already rising rapidly around the world. At the start of this year the US index of consumer prices logged its biggest rise since 1982, data published on Thursday showed, as the costs of food, apparel, transport and medical care continued upwards.

Spiralling prices and doubts over the US government’s economic policies have pushed consumer sentiment to the lowest level in more than a decade. Nearly half of all consumers surveyed by the University of Michigan expect declines in their inflation-adjusted incomes during 2022.

The cost shifts help show why the blue-chip companies in the S&P 500 stock index are estimated to register net profit margins of 12.7 per cent for 2022, compared with a five-year average of 10.5 per cent, according to data provider FactSet.

I think we are starting to see more individual companies struggling with inflation.

Ray Costa, head of distressed debt investments for Benefit Street Partners

McDonald’s lifted menu prices by 6 per cent in 2021 and the burger chain predicted that its food, paper and other commodity costs would climb twice as fast this year.

The drinks and snacks company PepsiCo expects more price increases in 2022 after encountering higher costs for cooking oil, packaging materials and other commodities.

Kellogg has found price increases to have a smaller than usual drag on demand, but chief executive Steven Cahillane forecast that would change. “Obviously, inflation continues to rage on,” he said during a conference call on Thursday.

Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, said that while it was easier for dominant companies to pass through price increases, “the big driver is the state of the financial consumer’s balance sheet and the financial cushion they have, and that’s given companies a tremendous amount of pricing power”.

Whirlpool, whose products include refrigerators, stoves and washing machines, said it offset $1bn in raw material inflation by increasing prices in every region where it did business.

Boot Barn, whose stores sell cowboy boots, hats and other apparel, said it had marked up goods as vendors raised their own prices. “We have taken the decision to maintain our margin rate,” James Conroy, Boot Barn’s chief executive, told analysts.

Under Armour, the athletic wear brand, on Friday reported a record gross profit margin of 50.3 per cent in 2021 but said it would drop this quarter in part because of “higher freight expenses resulting from ongoing Covid-19 supply chain challenges”.

Higher prices have complicated President Joe Biden’s economic agenda. His administration has attempted to assign some of the blame to industries that government officials say are excessively concentrated — meat packers in particular.

Tyson Foods — the US’s biggest meat producer — this week reported that its beef prices rose 32 per cent year on year in the last quarter, while chicken was up 20 per cent.

Higher prices are harder on the poorest Americans. Federal Reserve chair Jay Powell said last month that “high inflation exacts a toll” on those who struggle to pay for essentials such as food, housing and transport.

But rapid wage gains, home price appreciation, gains in the US stock market and pandemic-era policies have strengthened household balance sheets and “consumers have an ample runway to brace for price increases”, said Patrick Palfrey, senior equity strategist at Credit Suisse.

Companies across the Atlantic have also acknowledged the effects of persistently high inflation in recent earnings reports. Consumer group Unilever said this week it expected the strongest cost inflation in decades to hit profitability for two years.

L’Oréal, the world’s largest cosmetics maker, anticipates that supply-chain challenges and pandemic-induced inflationary pressures will fade from mid-year.

While many large companies have managed to pass on price increases successfully to consumers, there are signs that some smaller companies are struggling.

Cooper-Standard Automotive, a Michigan-based distributor of car components, warned last year that it had not been able to offset the impact of inflation. Its $400mn bond due in 2026 has tumbled from more than 95 cents on the dollar in July 2021 to about 75 cents on the dollar this month, ahead of financial results scheduled next week.

“I think we are starting to see more individual companies struggling with inflation,” said Ray Costa, head of distressed debt investments for Benefit Street Partners.

After blind-tasting about 250 bordeaux, the range of scores was wider than ever

Every year, a group of about 20 wine writers and Bordeaux-specialist merchants meet in the Wandsworth offices of fine wine traders Farr Vintners to taste blind about 250 bordeaux well after they are safely in bottle, including all the most revered names.

Châteaux donate samples, which are then gathered by retired Bordeaux-based wine merchant Bill Blatch. Farr staff marshal and open the wines, decanting them into neutral bottles (usually, most disconcertingly, burgundy shaped). None of us tasters knows which wine is which, although we do know which wines are in each flight.

Then there is the business of gathering our scores and entering them into a database while we discuss the wines in each flight still without knowing their identities. Only after we have swapped opinions, and Blatch has made notes on our conclusions to share with the winemakers and château owners, is it revealed which wine was which, resulting in a combination of groans and knowing grunts.

We all score out of 20 and I stick to the doubtless very annoyingly restricted scale I use on my website whereby a wine must be faulty to earn fewer than 15 points and absolutely amazing to win more than 18. (Many a half-point is awarded.) Yet some of the merchants, who don’t have to publish their notes and scores, are notoriously stingy — or, perhaps, use a more usefully extensive scale — and quite frequently award single digits.

The most recent vintage we assessed, last month, was 2018, and I think it would be fair to say that the range of scores was one of the widest ever for one of these tastings. This is very far from a uniformly poor vintage from Bordeaux, but there are some low as well as high points.

The whites, both dry and sweet, are less successful than the reds in general but there were exceptions. It wasn’t surprising that the whites of the Haut-Brion stable performed well, nor that Domaine de Chevalier Blanc did. More unexpectedly, the other notable dry whites were the two newcomers on the white bordeaux scene, which are modelled on Sancerre rather than Pessac-Léognan, the classical heartland of dry white bordeaux: Petit Cheval from Ch Cheval Blanc and Champs Libres from the Guinaudeaus of Ch Lafleur.

Unlike the glorious 2019, the 2018 vintage of Sauternes was blighted by a lack of noble rot. The warm, dry autumn may have helped those harvesting red wine grapes enormously, but noble rot thrives on humidity and it didn’t arrive until very late in October. So late, in fact, that some usually reliable Sauternes properties such as Chx Rieussec and Suduiraut delayed their harvest to such an extent that they ran into winter weather. Many of the sweet white 2018 bordeaux from less ambitious properties taste decidedly simple.

As for the 2018 reds, it’s difficult to generalise but there are some truly thrilling wines here, wines that will be worth waiting for. Although official analyses from Bordeaux’s academic oenologists suggest that tannin levels were fairly average — a little lower than in the glorious 2016 vintage for Cabernet Sauvignon grapes and a little higher for Merlot — the wines tasted pretty tannic.

This presumably reflects the thick grape skins resulting from a dry summer when some vines, especially those planted in well-drained soils, suffered stress before some late August showers, although water reserves had been topped up by a rainy winter and spring. Cooler, damper soils with a high clay content, as in St-Estèphe and parts of Pomerol, should have benefited.

The only quirky analytical characteristic to emerge from the analysts’ many charts is that acid levels in the 2018s were a little lower than average. Perhaps that made us notice the tannins a bit more (even though they are lower in general than in 2019, for instance)? Or perhaps it was because in the less successful reds — and 2018 is not the most consistent vintage — the most common fault was a lack of fruit to stand up to some distinctly drying, punishing tannins. This was most noticeable in Pessac-Léognan, while St-Estèphe estates seemed to cope especially well with the growing conditions of 2018 (which included rampant mildew and hail in spring, not a reassuring start).

Because September and early October were warmer and drier than usual there was no rush to pick and clearly many producers decided to strive for extra ripeness (hence the lower acidity). This meant that overall alcohol levels from these very ripe grapes were notably high.

Assuming the percentages given on the labels were accurate, of the 205 red wines we tasted, only 19 were less than 14 per cent and 19 were at least 15 per cent, of which four — Magrez Fombrauge, Péby Faugères, Quintus and Valandraud, all St-Émilions — had 15.5 per cent on the label. The most common alcoholic strength was 14.5 per cent. (White wines, whether dry or sweet, tended to be less potent, although Valandraud Blanc was 15 per cent.)

It was good to see some excellent “second” wines (less expensive reds from glamorous châteaux) such as those from the St-Estèphe superstars Ch Montrose and Cos d’Estournel. Ch Pichon Baron of Pauillac, usually a strong performer in these tastings, effectively makes two second wines: the Merlot-heavy Tourelles de Longueville and the longer-lasting Griffons de Pichon Baron. Both were popular with the group, though I preferred Griffons in 2018.

The most contentious wines we tasted were the pair made by the Mitjavile family, Tertre Roteboeuf in St-Émilion and Roc de Cambes in a favoured enclave in the relatively minor Côtes de Bourg district. These are super-ripe and unashamedly sensual, the liquid equivalent of a full-blown rose on the cusp of losing its petals. Obtrusive tannins? Forget it! Both wines really stood out from the rest and garnered many a low score, but I loved them. And I know from experience of past vintages that they are well capable of ageing.

The wines were released at higher prices than the Covid‑discounted 2019s so there may be fewer bargains. In my list of recommendations, I have asterisked the wines that impressed me for their relative value.

Holders of the digital assets should have similar protections to depositors

In October of 2020, the Kansas banking commission closed down a state bank in Almena, a railroad town just below the border with Nebraska. The Federal Deposit Insurance Corporation, which guarantees consumer deposits at American banks, paid $18mn to make every depositor whole. It was an unremarkable intervention. The banking commission stepped in on a Friday, with no interruption in deposits over the weekend. This was the last time a bank failed in America.

The collapse of the Almena State Bank, and the rescue of its depositors, went unmentioned this week when Nellie Liang, the US Treasury’s under secretary for domestic finance, testified in Congress. Her appearance followed a Treasury report in November on stablecoins, digital assets pegged to a sovereign currency. If you hold a dollar stablecoin — Tether, or the USD Coin, or the Binance USD — you are holding something that’s supposed to be exactly as valuable as a dollar bill.

The Treasury believes that stablecoins could make transferring dollars from one place to another cheaper and more efficient, a development desperately needed and long overdue in America.

But the Treasury also recommended that stablecoins be issued only by insured depository institutions — consumer banks, just like the one in Almena. That is a more contentious proposal, and it is also a question for the very near future. Since January of 2020, the total supply of dollar stablecoins has grown from $6bn to $174bn. For a sense of scale, last quarter, one of the biggest US consumer banks Wells Fargo reported $864bn in consumer deposits. Stablecoin supply is now at almost exactly one-fifth of that — brand-new, liquid financial liabilities that didn’t exist two years ago.

Republicans on the committee argued that forcing stablecoins into FDIC-insured banks would discourage innovation. But the problem with innovation is that the one form of it financiers most ardently desire is actually just the oldest trick in finance: borrow short-term liabilities, then balance them against long-term assets that are either crummy or do not exist.

Take the Almena State Bank. In 2014, according to a report from FDIC’s inspector general, the bank began an aggressive strategy of taking on government-backed small-business and agricultural loans. The bank decided to sell off the guaranteed portions of the loans, then keep the rest of the risk on the bank’s books. Making a lot of loans quickly is a great way to create non-performing loans, something the Kansas examiners told the Almena State Bank, repeatedly. That’s not innovation. That’s just holding crummy assets.

A stablecoin provider is a bank. It’s not like a bank; it’s a bank. When you buy a stablecoin, you are offering the provider a dollar loan, just like when you deposit a dollar in a bank. And, just like the bank does, the stablecoin provider has to hold enough performing assets to redeem that dollar loan for an actual US dollar on demand. Stablecoins, just like bank deposits, are “runnable” — if people get worried about the quality of a coin provider’s assets, they will take all their dollars back, quickly, all at the same time.

Morgan Ricks, a professor at the Vanderbilt Law School and a former Treasury official, calls this the “money problem” — if you create a financial liability that’s liquid like money, then it’s inherently runnable. If you want to create money, you can choose not to call yourself a bank, but you will still have the money problem. So there’s nothing inherently dodgy about stablecoins. But there is something inherently dodgy about banking, which is why countries build elaborate regulatory regimes to protect deposits.

You can read every regulation as the history of a disaster. In the roaring 1920s in America, several hundred banks failed every year. Consumers had to think carefully about where they deposited their money, because if they made the wrong choice, their deposits would disappear. In 1933, at the peak of the early-Depression banking crisis, 4,000 banks failed. In 1935 the US Congress created the FDIC to protect deposits.

You can say that people are adults and should do their research before buying a dollar stablecoin, but that’s not how financial crises work out in real life. When a lot of people watch what they thought had been money simply disappear, there is unrest. And so countries have learned how to regulate consumer banks aggressively, and plan for when they fail anyway. There are a lot of problems in American finance, but consumer deposits aren’t one of them.

The Treasury Department has proposed to treat stablecoin providers like deposit banks because they are deposit banks, and America has already worked out a system to keep deposits safe. The regulatory goal for stablecoins should be the same as for banks like the Almena State Bank in Kansas: to keep them from failing, and if they must fail, to make sure they fail quietly.

Husband and wife charged with attempting to launder $3.6bn of stolen bitcoin led colourful lives

In June of 2020, Heather Morgan wrote a column for Forbes that was headlined, “Experts Share Tips To Protect Your Business From Cybercriminals”. Now US authorities are alleging she was more of an expert than she let on.

On Tuesday, the entrepreneur and budding rapper was arrested and charged with attempting to launder more than $3.6bn in stolen bitcoin with her husband, Ilya Lichtenstein, as the US government took control of $3.6bn of bitcoin — the largest financial seizure in the history of the Department of Justice.

The DoJ accused the couple, who are now in custody, of employing a “complicated money laundering process” — but did not try to tie them to the actual theft — in a 20-page court filing outlining the allegations against them.

Samson Enzer, the lawyer for the couple, argued in a filing on Wednesday there are “significant holes in the government’s case against them”.

Its glossy flow charts cannot mask the many deficiencies in the government’s proof and unsupported, conclusory leaps,” added Enzer, who did not respond to requests for further comment.

Since their arrest on charges of conspiracy to commit money laundering and to defraud the US, speculation has swirled around Morgan, 31 and Lichtenstein, 34, who led colourful online lives while allegedly sitting on a fortune of stolen cryptocurrency for more than five years.

In 2016, unidentified thieves made off with 19,754 bitcoin, nearly 1 per cent of the cryptocurrency then in circulation. Since then, its value has ballooned from $71mn to more than $4.5bn today.

The DoJ alleges that the couple converted about $2.9mn of bitcoin into fiat currency. But authorities said more than 80 per cent of the stolen crypto remained untouched in accounts associated with Morgan and Lichtenstein, who describes himself as a tech entrepreneur.

The government’s specific money laundering allegations involve relatively small sums, including the purchase of a $500 Walmart gift card. The couple also allegedly bought gift cards for Uber, Hotels.com and PlayStation.

The sheer size of the heist would have been problematic for whoever masterminded it. “If they had stolen 500 bitcoin, no one would have bothered trying to find them, but this was the heist of the century,” said Frank Weert, the co-founder of Whale Alert, a blockchain tracking and analytics company. “It [would be] mindbogglingly stupid to steal this much bitcoin.”

Morgan is a self-described “serial entrepreneur, [software] investor, and surrealist artist/rapper”. In addition to her regular columns for Forbes she also wrote for Inc magazine on topics ranging from leadership skills to “snake handling techniques to help you deal with stress”.

Her Forbes author bio read: “When she’s not reverse-engineering black markets to think of better ways to combat fraud and cyber crime, she enjoys rapping and designing streetwear fashion.”

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A budding rap artist, Morgan’s lamé-clad rapper “alter ego” Razzlekhan sang on YouTube about the US healthcare system, entrepreneurship and a gynaecological condition called endometriosis. She described herself as having a “hacker mindset”, and rapped that “blindly following rules is for fools”.

Lichtenstein was a devoted fan. His marriage proposal to Morgan in 2019 involved him buying multiple Razzlekhan billboards in New York’s Times Square. Lichtenstein wrote on Facebook that his fiancée’s rapper persona was “surreal, mysterious, creepy and sexy . . . horrifying enough to grab attention, and enticing enough so you can’t look away”.

The money laundering allegations focus mostly on Lichtenstein, who is a dual citizen of the US and Russia, though he led a more subdued life on the internet. “Her rap is overshadowing his rap sheet,” said Nicholas Weaver, a lecturer at the University of California at Berkeley school of computer science.

Lichtenstein founded a company called EndPass in 2018, which was described as “a blockchain start-up solving problems in decentralised identity and authentication”. More recently, he has run an angel investment firm called Demandpath, according to his LinkedIn profile.

In photos on social media, their lower Manhattan apartment, which they appear to rent, was cluttered with cat toys, work-from-home set-ups and exercise equipment. The couple have a Bengal cat named Clarissa, which they walked on a leash. Morgan worked and made YouTube videos about entrepreneurship, juicing and prosthetic eyeballs at a small desk decorated with collages of postcards, and currency from Kazakhstan and Vietnam.

Their lawyer argued in court documents seeking bail that they were not a flight risk because their frozen embryos were at a New York hospital. “The couple would never flee from the country at the risk of losing access to their ability to have children, which they were discussing having this year until their lives were disrupted by their arrests,” Enzer wrote.

He also said the couple had been aware they were under investigation since November and had complied with authorities since the DoJ searched their apartment in January 5, seizing travel documents and computers.

The DoJ alleges those searches were fruitful — and colourful. It alleges that codes for the missing bitcoin were found in a file in Lichtenstein’s cloud account, which “contained a list of 2,000 virtual currency addresses . . . almost all of [which] were directly linked to the hack”.

One electronic document, labelled “passport ideas”, included links to darknet vendors that the DoJ said appeared to sell false identification. Another contained the name of a Russian bank that one member of the couple had dubbed “sketchy Russian oligarch bank”. Lichtenstein’s cloud storage allegedly contained a folder labelled “personas” with false identification documents.

“Being smart in no way stops you from being stupid,” said David Gerard, author of Attack of the 50-foot Blockchain. He said that bitcoin was harder to launder than other cryptocurrency because it is more easily traced on blockchain.

The DoJ alleges that the couple sometimes used their real names and addresses when creating accounts on regulated exchanges that were later used to buy gold with bitcoin. Weaver said that in an investigation of this nature: “One mistake becomes the breadcrumbs that can be followed”.

On her website, Razzlekhan, who called herself the “Crocodile of Wall Street”, wrote that she was always pushing the limits of what is possible. “Whether that leads to something wonderful or terrible is unclear; the only thing that’s certain is it won’t be boring or mediocre”.

Enthusiasts love the freewheeling atmosphere on the ‘eBay for crypto goods.’ But limited oversight also means the site is awash in unauthorized items; securing compensation after a scam can be tough.

SAN FRANCISCO—Four-year-old OpenSea has gained fame and a $13 billion valuation by staking a claim as the world’s biggest marketplace for some of the buzziest new items to trade, nonfungible tokens.

It has also become a haven for fakes and scammers trying to get users’ money or access to their newfangled assets—creating a struggle for the company that reflects a core paradox for emerging digital investments. On the one hand, enthusiasts are attracted to them because they are “decentralized,” operating largely outside the control of banks or government rules. On the other hand, when things go wrong, many of those enthusiasts expect OpenSea to enforce rules and compensate people who are ripped off—exactly the kind of role that centralized institutions have traditionally played.

NFTs became widely popular last year as a means to own digital versions of art and pop-culture items such as images of iconic moments in sports or music. They are meant to be unique rather than interchangeable—hence “nonfungible”—and exist as software records recorded on digital ledgers that are distributed across millions of computers around the internet, the technology known as blockchains. Making an NFT involves writing a piece of computer code that is recorded on the blockchain and is held in a digital “wallet” controlled by its owner.

People spent close to $30 billion last year on NFTs, according to analytics firm Chainalysis.

The speculative frenzy over NFTs has been a boon to OpenSea. In a year, the startup, which bills itself as “an eBay for crypto goods,” has gone from a tiny player in an obscure corner of the tech industry to the biggest NFT platform, listing more than 80 million of what it calls “digital goods” for sale and processing more than $3 billion a month in transactions.

Tech investors and other proponents of these tokens are drawn to them because they are not subject to much oversight from governments or corporations. But that lack of control can make for a virtual free-for-all that lacks the sort of order needed for stable commerce.

This vision of decentralization is, at least in theory, antithetical to the financial system we know today. Major stock markets, for instance, rely on government-issued currency and government-imposed rules, regulations and enforcement to make sure people aren’t swindled and companies don’t lie about the details of their business. In contrast, say cryptocurrency proponents, decentralized markets can use computer code for those functions. And barring tech glitches or accidentally revealing one’s password, an NFT can’t be stolen off the blockchain. If things are working properly, proponents say, a cryptocurrency-based market can facilitate transactions without the need for government oversight.

That vision worries government officials, who want to monitor transactions for money laundering and make sure people pay taxes. But it is enticing for people who see the technology as a new way to store and exchange value. Some of OpenSea’s trouble, in fact, stems from the tension between NFTs’ decentralized nature and OpenSea’s attempt to create a central market.

In practice, it is possible for anyone to make an NFT of any image or video, even if he or she doesn’t own the copyright for the image. OpenSea, and many NFT buyers and sellers, consider such an NFT stolen, or counterfeit, since the creator of the digital item doesn’t own the underlying art. But government policies haven’t caught up to this technology, so it isn’t entirely clear what legal consequences there might be for someone who creates an NFT of someone else’s art.

OpenSea, officially named Ozone Networks Inc., is backed by high-profile venture-capital firms including Andreessen Horowitz and Founders Fund. It has vacillated over how to run its platform since its popularity exploded last year. Early on, it relied on an approval process to combat abuse. But it rolled back those requirements last March, just days after an NFT of an image by an artist called Beeple sold for $69 million via Christie’s, accelerating a surge in trading. The company has thrived financially since the change. Measures it implemented subsequently were quickly removed after users complained.

OpenSea’s review system was overloaded with interest following the sale, in part because its software let people make unlimited numbers of NFTs for free. In response to the flood of new NFTs being created, the company decided to make all NFTs on the site easily available to buyers without being checked for problems like plagiarism or fraud. “This decision was made to better reflect OpenSea’s commitment to enabling decentralized economies,” an OpenSea spokesman said, responding to questions from The Wall Street Journal.

OpenSea uses a simple business model of taking 2.5% of every transaction.

The easy process for NFT submissions has been a problem for some artists and creators who are desperate to stop unauthorized sales of NFT versions of their work on the platform.

In December, researchers with a company called DeviantArt found about 25,000 digital images that had been turned into NFTs and sold without the permission of the original artists, many of them on OpenSea. That was a threefold increase from a month earlier, the analysis showed. DeviantArt, a division of Wix.com Inc., is a social network for artists to share images.

Thousands of images a day have been turned into NFTs by people who don’t have permission from the creators of the images, so many that DeviantArt suspects they are being created by bots. An OpenSea spokesman said the company is aware of abuse by bots and is trying to address it.

In response to questions from the Journal about problems on the site, OpenSea said last month that it is hiring dozens of employees to deal with copyright infringement and security problems in the coming months.

“We take seriously our role in stewarding this new technology and taking steps to both protect and educate our users along the way,” OpenSea Chief Executive Devin Finzer said in emailed comments.

Late last month, after questions from the Journal about a proliferation of copyright infringement on its marketplace, OpenSea announced new restrictions. It said on Twitter that it had found that more than 80% of the NFTs created using OpenSea software “were plagiarized works, fake collections, and spam.” A company spokeswoman later said the 80% figure was inaccurate. The company said it would only let people use its software to create five collections of NFTs, each with 50 items or fewer; previously there were no limits.

NFT creators quickly revolted against the new security measures and complained on social media. “This move will single-handedly derail all the work we’ve been doing over the last 10 months,” tweeted an account linked to the RomanPunks NFT collection, which describes itself as “a retrofuturistic, cyberpunk-derivative world building project fronted by a woman artist and a history buff.”

Mr. Finzer wrote in an email that he understands such regulations conflict with the principle of decentralization. Enforcing rules is “by nature a centralized action,” he wrote. “ ‘Centralization’ is a divisive issue within the crypto community, because for many it feels antithetical to the blockchain movement.”

OpenSea has been grappling with that balance since NFTs surged in popularity a year ago. The company held an off-site retreat for staff last summer that focused on “trust, safety and reliability,” said Katie Haun, a venture capitalist and OpenSea boardmember who spoke at the retreat.

Weeks later, OpenSea had a public crisis when an NFT enthusiast conducted a blockchain investigation and revealed on Twitter that an OpenSea employee had traded an NFT based on nonpublic information about the company’s plans to promote it. OpenSea said it confirmed the allegation, fired the employee and imposed more explicit rules against such activity.

The company’s struggles speak to the challenges of developing new markets at a large scale for blockchain-based goods. Without a careful process for reviewing content, the potential for scams or loss due to theft may chase off potential new users. But every new limit risks angering enthusiasts who have flocked to NFTs and cryptocurrency precisely because it lets them buy and sell without using banks or regulated stock markets.

OpenSea has received hundreds of millions of dollars of venture-capital investment, with Andreessen Horowitz leading two fundraising rounds. The firm is represented on OpenSea’s board by Ms. Haun, a high-profile investor in cryptocurrency companies whose prior career as a federal prosecutor has helped put a stamp of legitimacy on cryptocurrency, which used to have a reputation for operating on the fringes of the law.

In a blog post last year she compared OpenSea to eBay Inc. and Amazon.com Inc. Ms. Haun recently left Andreessen Horowitz to create her own fund that invests in blockchain-based companies. Since she joined the board in May, Ms. Haun has helped recruit executives with experience outside the cryptocurrency world. She says it is part of OpenSea’s process of figuring out how to make rules for a marketplace for which few government regulations exist. “The company has gone through these exercises of what is the best way of self-regulation,” she said.

Without government regulation, user-transparency requirements or clear legal recourse for customers, the people who run big blockchain-based marketplaces have little incentive to implement basic protections that other markets have long had, said Nick Weaver, a researcher at the University of California, Berkeley’s International Computer Science Institute.

An OpenSea spokesman said there is a big incentive to fix problems like copyright infringement and security issues because they could turn away customers.

The NFT market can be especially problematic because blockchain transactions are irreversible, says Mr. Weaver, an ardent critic of the rise of blockchain-based markets. Once an item changes hands, whether because it has been sold or stolen, the technology makes it close to impossible to claw back without the new owner’s permission. An OpenSea spokesman said the company is working to make sure people understand the irreversible nature of transactions the site facilitates.

OpenSea doesn’t root out abuse only by itself. It removes an NFT if someone files a legal notice alleging copyright infringement. But in some cases, artists say the number of new NFT uploads is far too high for any individual to keep up with, or that OpenSea is slow to take action.

J. Paul Gomez, a Toronto-based creator of Freemason-themed neckties and other pieces of art, says that when he first learned about NFTs last year, he was excited. “All of a sudden I felt empowered,” he said. NFT markets represented a new way to promote and sell his work, and the tie market has been tepid. “Who would buy neckties during a lockdown?” he says.

He checked out OpenSea and realized that some of his art was already on the site—being sold by other people. He found two images of Masonic logos he had designed, one superimposed over a photo of a naked man, for sale on OpenSea. On Dec. 10 he emailed OpenSea to notify them that the art belonged to him.

On Jan. 4 the company replied that it would respond soon, but that “due to our support ticket volume, our responses can take up to a week.” He hasn’t heard back since, and on Jan. 31 both images were still for sale on OpenSea, one for about $5.00 and the other for more than $50,000.

OpenSea said: “In certain instances, including this one, we have not responded as quickly as our community deserves.”

OpenSea said it removes, on average, 3,500 collections of NFTs each week from its listings for being counterfeit or due to other problems.

Beyond bad behavior on its site, OpenSea has also dealt with a series of security issues with uneven responses. Examples include bugs that let bad actors create NFTs under other people’s digital identities or buy NFTs from owners who don’t want to sell.

OpenSea said in late January that it took steps to fix the glitch that caused unwanted NFT sales, about a month after it had been reported.

Carson Turner, a 38-year-old aviation worker near Atlanta who has made more than $1 million in profit trading NFTs from the Bored Ape Yacht Club, a series of drawings of exasperated-looking chimpanzees, encountered the problem in early January.

He got an email from OpenSea saying he had sold a Bored Ape NFT for about $270,000 worth of the cryptocurrency Ethereum. “I said ‘Whoa, whoa, whoa,’ ” Mr. Turner recalls. That $270,000 represented an earlier price; Mr. Turner had since pulled the NFT off the market with plans to list it at a higher price.

He contacted the buyer, who agreed to return the NFT, but only in exchange for just over $30,000 worth of Ethereum. Mr. Carson tweeted about the issue and OpenSea contacted him and reimbursed him for the roughly $30,000. But the company didn’t fix the problem—days later, a group of cryptocurrency researchers and investors called Information Token DAO published a Medium article about encountering the same issue.

OpenSea said the problem stems from the nature of NFTs and the blockchain. When someone lists an NFT for sale at a certain price, that information is written into the blockchain. Pulling the item off OpenSea appeared to take the NFT off the market, but didn’t change the underlying code on the blockchain. That allowed people to use the old price to buy NFTs that buyers thought they took off the market.

Mr. Turner said the glitch is symptomatic of a bigger challenge for OpenSea. “You’re the biggest player in the game so you’re going to have to enforce some rules,” he said. “They’re struggling.” On Jan. 26, after the Journal inquired about the problem, OpenSea posted on its website a series of measures intended to address it.

Also in late January, OpenSea announced a separate measure to fight copyright infringement, the 50-item limit on new NFTs created with its free software. Social media blew up with complaints from NFT creators, and the company quickly responded in a Twitter post: “We hear you and we’re sorry.” It lifted the restriction and restored the old system in which sellers can make as many NFTs as they want for free, even though the company blamed this system for the prevalence of plagiarized NFTs on the site.

“In addition to reversing the decision, we’re working through a number of solutions to ensure we support our creators while deterring bad actors,” the company said on Twitter.

The company said the January measures didn’t deter bot activity, and it is now implementing a technology called ReCaptcha, which seeks to distinguish human web users from bots by requiring them to check an “I’m not a robot” box or solve a simple puzzle. Later this year, it intends to start using an automated system to compare new NFTs with existing images to root out plagiarism.