Artists File Lawsuit Against SEC Over NFT Security Status

SNEAK PEEK

  • Artists sue the SEC to clarify if NFT art must comply with U.S. securities laws, citing the potential impact on creators.
  • Plaintiffs argue NFTs should not be treated as securities, likening the case to reselling Taylor Swift concert tickets.
  • The lawsuit seeks to prevent SEC’s regulatory actions on NFTs, following its first NFT case against Impact Theory.

Two artists have initiated a lawsuit against the U.S. Securities and Exchange Commission (SEC), seeking confirmation on whether non-fungible tokens (NFTs) fall under the commission’s regulatory authority. 

The artists involved in the legal dispute are accompanied by their lawyers who claimed that such an approach of the SEC may affect the art industry. 

The central issue of the lawsuit is the need for clear guidelines on whether creating and selling NFT art could trigger U.S. securities laws. Frye and Mann’s attorneys have asked the court to determine if artists must register their NFT art before selling it and disclose any associated risks to potential buyers.

The legal team drew an analogy to Taylor Swift concert tickets, which are often sold on secondary markets, arguing that it would be absurd to classify such tickets as securities.

The attorneys highlighted that Taylor Swift promotes her concert tickets, which are then resold by others. They argued it would be nonsensical for the SEC to treat Swift’s tickets or related collectibles as securities. By extension, they claim the same logic should apply to NFTs created by artists like Frye and Mann, who simply wish to sell their digital art without facing regulatory scrutiny.

The lawsuit requests declaratory and injunctive relief against what the plaintiffs describe as “unlawful enforcement actions” by the SEC on their NFT projects. This move comes in response to the SEC’s first NFT case against Impact Theory, a YouTube channel and podcast, last August. 

The SEC had accused Impact Theory of using the digital asset to sell the NFTs of Founders Key implying that they acted as securities. 

Frye’s and Mann’s current lawyers reject the notion of classification of NFTs as securities insisting that it would harm artistic economy. As for the opponents of such an approach, they have claimed that it poses a danger to those, who only occasionally have decided to apply new technology or have selected this medium intentionally. 

The legal team argues that if the SEC’s logic were to be generalized, then Taylor Swift’s songs or collectibles could be considered securities if released in the NFT format and the commission might order their termination.