Two artists 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.
“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 says.
The two plaintiffs are law professor and filmmaker Brian Frye, and songwriter Jonathan Mann (also known as Songadaymann). They are represented by one of the top lawyers in crypto litigation, Jason Gottlieb, who according to court filings filed July 29 opened the lawsuit with a series of 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 lawsuit argues that an artist selling NFTs is not meaningfully different from an artist selling different mediums of art, and so NFTs should not constitute investment contracts.
The outcome may have lasting effects, providing clarity for NFT artists,and also providing an avenue for a larger group of creators who may have held back from tokenizing their creations because of the regulatory risk. .
The court filings made reference to a number of all-time historic artists and musicians such as Jackson Pollock, Andy Warhol, Bob Dylan, Janis Joplin, and whether they would have had to register their S-1 filings with the SEC to sell their creations.
“None of that would make sense whatsoever,” said the attorneys. “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 the supervision of chairman Gary Gensler there has been a regulation-by-enforcement tactic, which has pushed innovation offshore and made for a dicey situation in the United States. That said, his tenure might be coming to an end if Donald Trump gets elected in the upcoming November election.
With or without Trump, this lawsuit could be a potential watershed moment in how the SEC regulates crypto moving forward.
“The lawsuits will continue until policy improves,” said Jake Chervinsky, Chief Legal Officer at Variant Fund. His words resonate with those of Austin Campbell, founder of Zero Knowledge Consulting who told The Defiant that he considers this lawsuit what the SEC needs to understand crypto beyond just tokens, and that it’s interesting to note how the agency will have to “confront” conceptual art in this manner.
Most in the cryptocurrency community are backing the two artists’ lawsuit, hoping that it is a sign of potential policy change from the SEC around the corner–and that art can continue to live onchain without the fear of repercussions.
