NFTs
US SEC Sued Over NFT Art Regulation Claims in Los Angeles Court
Brian L. Frye, a law professor and conceptual artist, has sued the U.S. Securities and Exchange Commission (SEC) in a Los Angeles court for making NFTs securities under its regulation.
This lawsuit filed by Fry and Songadaymann comes at a time when there is a debate about how to categorize digital art assets.
US SEC sued over NFT art regulation
According to the recent lawsuit, the crux of Fry’s lawsuit revolves around his view that the SEC’s interpretation of securities laws is too broad and does not promote artists who use NFT as his medium. Frye, the Dogecoin Law Professor, has always questioned what he considers traditional interpretations of legal works, especially such as his ‘SEC No-Action Letter Request’ – a conceptual work of art.
In this project, according to him, it was an unregistered security based on this type of Howey Test, about which he did not receive any response from the SEC as to whether or not it was an unregistered security.
Frye’s latest litigation explores how securities law impacts both the digital and conventional art markets. He argues that by taking its position, the SEC is restricting creativity among artists by imposing unnecessary barriers to entry into the NFT space.
Frye’s attorney, Jason Gottlieb, noted that this case would protect the rights of digital artists and also put the SEC within its regulatory limitations.
Role of NFTs in Art and Regulation
Frye’s lawsuit also underscores the broader implications of NFT regulation on the art market. NFTs, or non-fungible tokens, have surged in popularity among artists selling digital art, often fetching high prices at auction.
However, the legal framework for NFTs is still unclear, as the U.S. SEC has suggested that some NFTs could be considered securities, thus requiring compliance with various rules and precautions. According to Frye’s complaint, art, and specifically digital art sold as NFTs, should not be treated as securities.
This approach is opposed to the SEC’s use of the Howey testa legal criterion developed in the 1940s to assess whether a particular transaction should be considered an investment contract. According to Frye, this SEC approach is unhelpful because art transactions, unlike commercial transactions, are often based on the subjective qualities of the artwork.
SEC’s allegations of overreach
The case has garnered a lot of attention, especially because of Frye’s attorney Jason Gottlieb’s social media presence. Gottlieb previously defended defendants in the DEBT BOX case in Utah, which was quite infamous for the resignation of several SEC members and the closure of the SEC’s Utah branch.
XRP attorney MetaLawMan noted that Gottlieb was instrumental in exposing dirty tactics at the SEC during the case and his involvement in the Frye case could cause chaos at the SEC.
Additionally, with Gary Gensler at the helm, the US SEC has stepped up its crackdown on the crypto space, raising questions about the regulation of digital assets.
Therefore, the former President of the United States of America, Donald TrumpTrump Jr. has also spoken out on the matter, vowing to remove Gensler from office on his first day back as president if he wins the election. Later, as reported by Coingape, Trump criticized the SEC for its hardline stance on digital assets, vowing to put an end to the “anti-crypto crusade” and the “persecution and weaponization” of digital assets.
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