NFT Artists Sue SEC, Challenging Its Regulation of Digital Art Sales

In an unprecedented move, two artists have filed a lawsuit against the U.S. Securities and Exchange Commission, challenging the agency’s authority to regulate NFTs, or non-fungible tokens.

Musician Jonathan Mann and artist and law professor Brian L. Frye filed a civil complaint in U.S. District Court, Eastern District of Louisiana, on July 29.

“This case is about art,” the brief reads. “More specifically, 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 purchasing their art? Should artists be required to comply with federal securities laws, and the thousands of regulations and reams of interpretive guidance under them, just to offer their works to the public? Or should artists simply be allowed to create and sell art?” are some of the questions posed by the claim.

The lawsuit, which asks for a “declaratory judgment,” an opinion or ruling in their favor without having to proceed to trial, posits that the answers to these questions seem “obvious,” noting that it would be ridiculous to require iconic artists like Jean-Michel Basquiat, Roy Lichtenstein, Georgia O’Keeffe, Jackson Pollock and Norman Rockwell to have to “trademark” their paintings.

The lawsuit claims that while applying securities laws to artwork makes no sense in either the physical or digital realm, the SEC has nonetheless “begun a campaign to assert jurisdiction over digital art sales that should sound an alarm to every artist and patron in America.”

An SEC representative declined to comment.

The lawsuit noted two recent administrative actions by the SEC that indicate it wants to determine when art needs to be registered with the federal government before it can be sold. The actions were against NFT projects known as Impact Theory and Stoner cats respectively.

In the actions, the SEC accused Impact Theory and Stoner Cats for “conducting an unregistered offering of crypto securities in the form of purported non-fungible tokens,” according to the lawsuit. “They sold works of art to the general public. The NFTs were not shares of a company and did not generate any type of dividend or ongoing commitment to generate profits for the purchasers.”

The lawsuit claims that, other than the digital nature of the artworks, there was “little conceptual difference between these series of artworks and, say, Andy Warhol’s 1962 series of 32 canvases called Campbell’s Soup Cans.”

Andy Warhol’s Campbell’s soup cans on display at the Museum of Modern Art in New York City, 2020. Photo: Cindy Ord/Getty Images.

Although both of the above mentioned administrative actions have been eventually resolvedThe plaintiffs call the efforts “a clear statement by the SEC of its view that digital works of art—when accompanied by royalties and public statements about the artist’s current and future efforts, their hopes for the value of those efforts, and/or their use of proceeds to support themselves and their efforts—are securities. The SEC’s position raises a number of unanswered questions for creators, sellers, and buyers of NFTs—most notably, under what circumstances do the offering and sale of NFTs constitute offerings or sales of securities?”

Mann is a singer-songwriter known as “Song of the Day Mann.” He has written and released a full song per day since January 1, 2009, and holds the Guinness World Record for “Most consecutive days writing a song.” His songs range from political commentary to celebrations of everyday life, and he makes his living selling his music digitally, according to the lawsuit.

Frye is a conceptual artist and law professor based in New Orleans. His work, Oona’s Veilis part of the Whitney Museum collection, and his work was included in a previous iteration of the Whitney Biennial. In addition to experimental films, he produces digital art, including conceptual multimedia productions related to his legal scholarship. He provides commentary on various fields of law, which he sells as NFTs.

Some of his designs draw on and pay homage to other well-known conceptual art works and projects, such as Sol LeWitt’s wall drawings and Maurizio Cattelan’s infamous Comedian. a banana taped to the wallwhich caused a viral sensation when it debuted at the 2019 edition of Art Basel Miami Beach.

One of his old concept art projects, titled SEC-No Action Letter Requestargues that the sale of conceptual art violates the Securities Act of 1933. It further proposes to prove itself by requesting a no-action letter from the SEC arguing that the sale of a work of conceptual art titled “SEC No-Action Letter Request” does not violate securities laws.

Over the phone, Frye explained that he met Mann on X (then known as Twitter) a few years ago and they bonded over their shared concerns. “This is our livelihood,” he said. “What happens if the SEC decides to come after us?”

“I’m coming in as someone who illustrates, in the best way possible, the absurdity of the position the SEC is taking regarding NFT sales,” he added.

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