Artists Seek Legal Clarity for NFTs
Two artists, Brian Frye and Jonathan Mann, are suing the Securities and Exchange Commission (SEC) to push the agency to declare that the non-fungible tokens (NFTs) linked to their creations are not securities. Frye, a law professor and filmmaker, and Mann, a songwriter known as Songadaymann, are challenging the SEC’s stance on NFTs in a bid to provide legal clarity for the burgeoning digital art market.
The Lawsuit’s Core Arguments
The lawsuit, filed on July 29, seeks a declaratory judgment that their NFT projects do not violate U.S. securities laws. The plaintiffs argue that publicly offering and selling their art as NFTs, attaching royalties, and marketing these NFTs should not be considered the offer and sale of securities.
“Plaintiffs thus seek a declaratory judgment that their proposed NFT projects do not violate U.S. securities laws—i.e., that they would not be engaging in the offer and sale of securities by merely publicly offering and selling their art as NFTs, attaching royalties to the NFTs, and/or marketing the NFTs and their personal artistic endeavors to the public,” the lawsuit states.
Legal Representation and Key Questions
The artists are represented by Jason Gottlieb, a leading lawyer in crypto litigation. The lawsuit opens with several pointed questions:
- Should art be regulated by the Securities and Exchange Commission?
- Should artists have to “register” their artwork before selling it to the general public?
- Should artists be forced to make public disclosures about the “risks” of buying their art?
The plaintiffs argue that selling NFTs is not fundamentally different from selling other forms of art, and thus NFTs should not be classified as investment contracts.
Potential Implications for NFT Artists
The outcome of this lawsuit could have significant implications, providing clarity for NFT artists and potentially encouraging more creators to tokenize their work without fear of regulatory repercussions. The court filings reference iconic artists like Jackson Pollock, Andy Warhol, Bob Dylan, and Janis Joplin, questioning whether these figures would have needed to register their art with the SEC.
“None of that would make sense whatsoever,” the attorneys argue. “And requiring such nonsensical barriers would have strangled the production of some of the greatest American artists, and the greatest American art.”
Regulation by Enforcement Under Gensler
The SEC, under Chairman Gary Gensler, has taken a regulation-by-enforcement approach, which has been criticized for stifling innovation and pushing it offshore. This lawsuit could become a pivotal moment in how the SEC regulates crypto and NFTs moving forward.
“The lawsuits will continue until policy improves,” said Jake Chervinsky, Chief Legal Officer at Variant Fund. Austin Campbell, founder of Zero Knowledge Consulting, noted that this lawsuit could help the SEC understand the broader implications of crypto beyond just tokens.
Community Support and Future Implications
The cryptocurrency community largely supports the artists’ lawsuit, seeing it as a potential catalyst for policy change that would allow art to thrive onchain without fear of regulatory repercussions. The outcome of this case could set a precedent for how NFTs are treated under U.S. securities laws, impacting artists, creators, and the broader digital asset market.
