NEW ORLEANS, Saturday, August 03, 2024 – Two artists have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), challenging the agency’s authority to regulate non-fungible tokens (NFTs). The lawsuit, filed Monday in the U.S. District Court for the Eastern District of Louisiana, seeks a judicial determination on whether the SEC has jurisdiction over NFTs, which are unique digital assets often used to represent ownership of digital art and other media.
The plaintiffs, artist and law professor Brian Frye and songwriter Jonathan Mann, argue that the SEC’s approach to NFTs poses a significant threat to artists who use this emerging technology as a medium.
The lawsuit asks whether artists are required to register their NFT artworks with the SEC before selling them and if they must disclose risks associated with purchasing their digital creations.
Central to their argument is a comparison to the resale of Taylor Swift concert tickets. The plaintiffs contend that, similar to NFTs, Swift’s tickets are resold in secondary markets and promoted by the artist herself.
They argue that it would be unreasonable for the SEC to classify Swift’s tickets or collectibles as securities, highlighting what they see as the potential overreach of the SEC’s regulatory authority.
The legal action follows a series of enforcement actions by the SEC against NFT projects. Last year, the SEC targeted Impact Theory, a YouTube channel and podcast studio, accusing it of marketing its “Founders Key” NFTs as investment opportunities.
The SEC classified these NFTs as investment contracts, subjecting them to securities regulations. The case was settled, with Impact Theory agreeing to penalties. A similar action was taken against Stoner Cats 2 LLC, which settled after the SEC alleged an unregistered NFT offering that raised $8 million.
Frye and Mann are seeking declaratory and injunctive relief to prevent what they describe as “unlawful enforcement actions” by the SEC against NFT projects. Mann, known as “Song a Day Mann,” has also released a song titled “I’m Suing the SEC” and put an NFT of the musical number up for auction.
