A legal battle is unfolding as two artists — Brian Frye, a law professor and filmmaker, and Jonathan Mann, a songwriter — have sued the US Securities and Exchange Commission (SEC).
Filed on July 29, the lawsuit seeks to determine if artists must register their NFTs before public sale and if they need to disclose potential risks to buyers.
"Art is not a security, and musicians working in a digital medium should not have to hire expensive securities lawyers just to release music," said one of the plaintiffs' attorneys, Jason Gottlieb, on X.
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The legal team for Frye and Mann argues it is unreasonable for the SEC to classify NFTs as securities in the same way it would be absurd to categorize Taylor Swift's concert tickets as such. The attorneys pointed out that Swift's tickets are sold on secondary markets, and she promotes her events, yet they are not deemed securities. The court filing adds:
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 seeks both declaratory and injunctive relief to protect Frye and Mann from what they consider "unlawful enforcement actions" by the SEC on their NFT projects.
This legal action follows the SEC's first NFT-related case against Impact Theory, a media and entertainment company, in August 2023. The SEC alleged that Impact Theory promoted its Founder's Key NFTs as an investment into the business, claiming that investors would profit if Impact Theory succeeded. The attorneys noted:
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.
They further emphasized that the SEC's stance endangers the livelihoods of artists and creators who are merely exploring a new, rapidly developing technology or have adopted it as their chosen medium.
The lawsuit aims to safeguard the interests of artists like Frye and Mann, ensuring that their creative expressions through NFTs are not stifled by regulatory overreach.
In other news, video game developer Dapper Labs has recently reached a $4 million settlement in a class-action lawsuit, concluding that its NBA Top Shot Moments NFTs do not qualify as securities.
