Five years ago, Brian Frye set up an elaborate trap. Now, the law professor is teaming up with a singer-songwriter to finally expose him to the SEC in a new lawsuit — and, in the process, prevent the regulator from ever going after NFT art projects again.
Earlier this week, Frye and musician Jonathan Mann filed a federal lawsuit against the U.S. Securities and Exchange Commission that seeks to finally force the agency to articulate its position on the legal status of NFTs. About It is againthe SEC has sued select NFT projects that it says qualify as unregistered securities — but the regulator has never defined which types of NFT projects are legal and which are not, launching a cold about the nascent industry.
The bizarre saga of this week’s lawsuit begins in 2019, when Frye, a securities law expert and tech enthusiast, minted an NFT of a letter he sent to the SEC in which he declared his Art project constitute an illegal and unregistered title. If the concept art project was not a security guard, Frye challenged the agency, so she needed to say that.
The SEC never responded to Frye—not then, nor after several other self-incriminating letters from the professor. But in due course, the agency began vigorously pursuing, and prosecuting, NFT projects.
Last September, when the regulator came after actress Mila Kunis’s NFT cartoon series Stoner catsMany artists who rely on revenue from NFT sales were concerned. Jonathan Mann, a musician who has written a new song every day since 2009, was one of those artists. But he wasn’t just concerned—he was outraged.
“Whenever I talk to the Stoner Cats people, or other people who have been affected [by the SEC]steam comes out of my ears,” Mann, better known as “Song of the Day, Mann” counted Decipher. “I feel physically angry.”
Stoner Cats, a cartoon web series developed by Mila Kunis that featured the vocal talents of several A-list actors and Ethereum creator Vitalik Buterin, sold NFT passes required to watch the show. The creators of Stoner Cats eventually reached a $1 million settlement with the SEC without admitting wrongdoing, but the lawsuit nearly killed the project, as did other NFT-powered series backed by Kunis.
On the same day as the Stoner Cats deal, Mann posted a new song titled “This music is a security.” (He writes fast.) Mann resolved at that point to fight the SEC and defend his right — and the rights of other artists like him — to make money from selling NFTs. That would involve voluntarily getting off his ass and challenging the agency head-on, despite the fact that the commission had not yet sued him. But Mann felt he had no other choice.
“Nobody wants to be under the SEC’s watch,” he said. “But I feel like our cause is so just, so clear to me, that it seemed like a no-brainer.”
Mann soon connected with a legal team deeply rooted in the cryptoverse who liked the idea of forcing the SEC to act on its NFT policies with a preemptive lawsuit. They just needed another author. Frye, who had been practically salivating over such an opportunity for half a decade, was a natural fit.
“In the past, the SEC has always been able to pick and choose its own defendants,” Frye said. Decipher. “So they went after people like Stoner Cats, because they knew they could paint the Stoner Cats in a bad light. They knew they could intimidate them into conforming.”
But now, Frye and Mann are drawing the battle lines. In lawsuit filed against the SEC in Louisiana earlier this week, they challenged the SEC’s position to regulate their NFT-backed artworks as securities, and demanded that the agency declare that their respective art projects do not constitute illegal and unregistered securities offerings. The SEC refused Decipherrequest to comment on the process.
I don’t think they want to say the quieter part out loud, which is, “We can regulate whatever we want.”
—Brian Frye, professor of law at the University of Kentucky
Mann celebrated the occasion with a new song (coined as NFTof course) titled “I’m suing the SEC.”
“Like, I didn’t grow up with a distant dream… of one day suing a government agency,” the upbeat anthem goes. “But there’s this crooked regulator who’s been up to no good… Doing his best to try and mess with my livelihood.”
Fundamentally, Frye believes there is a massive logical gap in the SEC’s approach to NFTs. For decades, as Frye has long argued, emphasizedthe regulator refrained from regulating the art market, even pieces routinely bought as stores of value and sold in series of identical or near-identical derivatives.
So what is it about putting these artworks on-chain that would automatically make them securities? And why would only some NFT projects fall under the SEC’s authority but not others?
“I don’t think they want to say the quiet part out loud, which is, ‘We can regulate whatever we want,’” Frye said.
The law professor is therefore quite excited about the prospect of finally forcing the SEC to explain the contours of its NFT policies in federal court.
“I think that’s going to be a very difficult thing for them to do,” he said.
If for Frye this week’s proceedings represent an exciting and long-awaited intellectual battle with the American state, its significance is a little more existential for composer Mann.
“I want to know, for myself and for everyone I know who is trying to make a living doing NFTs, that what we are doing is not going to attract Eye of Sauron”, said Mann, citing the all-seeing, all-destroying, all-powerful villain of Lord of the Rings fame.
The lawsuit is not guaranteed to provide any conclusive end to the issue of NFT regulation, both readily acknowledge. That could only come with concrete legislation or a Supreme Court ruling.
Either way, both the professor and the musician are feeling catharsis — albeit for slightly different reasons — at the prospect of finally bringing the SEC’s seemingly contradictory stance on NFTs to trial.
“This is a really deep, existential, ontological problem that needs to be solved one way or another,” Frye said. “I’m not saying I know what the right answer is. I’m just saying there has to be an answer.”
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