Artists sue SEC over confusing security status of NFTs

Two artists have sued the United States securities regulator seeking answers on whether nonfungible tokens fall under the commission’s authority.

Attorneys representing the plaintiffs — law professor and filmmaker Brian Frye and songwriter Jonathon Mann — sought clarification on which acts could trigger US securities laws when creating and selling NFT art.

Attorneys have asked whether artists need to “register” their NFT art before selling it to the public and whether they must make public disclosures about the “risks” of buying their art, the July 29 court filing shows.

Proud to represent my client and friend Jonathan Mann @songadaymann in his brave and unfortunately necessary lawsuit against the SEC.

Art is not a security, and musicians working in a digital medium should not have to hire expensive securities lawyers just to release music. https://t.co/FBYL9FZZfG

— Jason Gottlieb (@ohaiom) July 29, 2024

Frye and Mann’s attorneys used Taylor Swift concert tickets as an example, arguing it would be absurd for the Securities and Exchange Commission to class NFTs as securities.

Swift sells concert tickets which are sold on the secondary market and she makes statements to promote those events — but it would be “utterly nonsensical” for the SEC to treat Swift tickets or collectibles as securities, the attorney’s argued.

“While Jonathan Mann and Brian Frye differ from Taylor Swift in many ways, in the context of this lawsuit, they are in exactly the same position. They are artists, and they want to create and sell their digital art, without the SEC investigating them or filing a lawsuit.”

The lawsuit requests declaratory and injunctive relief against “unlawful enforcement actions” from the SEC on NFT projects launched by Frye and Mann.

The SEC brought its first NFT case against YouTube channel and podcast Impact Theory last August — claiming it encouraged potential investors to view the purchase of Founders Key NFTs as an investment and that investors could expect to profit from those purchases.

But Frye and Mann’s lawyers strongly disagreed with the SEC’s allegations: “Imagine if the SEC found that Taylor Swift songs or collectibles were securities (or were securities if merely released in NFT form), and ordered them to be destroyed.”

“It sounds far-fetched. But that is exactly what has happened to Impact Theory and SC2.”

“The SEC’s approach threatens the livelihoods of artists and creators that are simply experimenting with a novel, fast-growing technology or have chosen it as their preferred medium," the lawyers stressed.

Wow. We have reached the point where the SEC’s application of securities laws is so arbitrary and unlawful that *artists* are compelled to sue the SEC directly in order to protect their livelihoods. The SEC is broken. (And fwiw I have thoroughly enjoyed many of these songs!) https://t.co/F6mfq2LJ6g

— Katherine Minarik (@MinarikLaw) July 29, 2024