Two NFT Artists Sue the SEC, Asking the Court to Clarify Whether NFTs Fall Under the Regulator's Jurisdiction

A case of 'art' Law professor Brian Frye and Jonathan Mann, the songwriter of "Song a Day Mann," filed the lawsuit Monday

Two nonfungible token (NFT) artists have filed a complaint in the U.S. District Court for the Southern District of Ohio against the Securities and Exchange Commission (SEC), asking the court to provide clarity about whether NFTs fall under the jurisdiction of Wall Street's largest regulator.

A case of 'art'

The complaint, filed Monday, begins with the statement that the case is "about art." It goes on to ask the court to clarify whether the SEC should regulate art and whether artists are supposed to "register" their artworks before selling the pieces to the general public.

The complaint also asks whether artists should be "forced to make public disclosures about the 'risks' of buying their art," and whether artists should be "required to comply" with federal securities laws. "It would have been ridiculous" to require great American artists such in the past to register their paintings, the filing noted.

The plaintiffs alleged that the SEC has waged a "campaign to assert jurisdiction over sales of digital art, which should ring alarm bells for every artist and patron in America." The lawsuit reiterated that Frye and Mann are artists who create art to be sold in the form of NFTs, which the plaintiffs' lawyers described as "digital assets that can take the form of art, music, videos, and in-game items, among many other things."

The complaint further stated that NFTs are unique digital assets that are bought and sold online, usually with cryptocurrency, and are often encoded with the same software as ether. The complaint added that NFTs are distinct from other digital assets because they are not mutually interchangeable.

"For example, one bitcoin is largely indistinguishable from another bitcoin, which allows for bitcoins to be easily traded. In contrast, each NFT is unique, which makes them unsuitable for trading in the same way as bitcoins or other fungible digital assets," the complaint stated.

NFT artists gain support from crypto community

Some of the cryptocurrency industry's experts have taken to Twitter to express support for the artists, including Katherine Minarik, the chief legal officer of Uniswap Labs, the company behind the Uniswap Protocol.

Minarik noted that the SEC has become "broken" enough in its "arbitrary and unlawful" application of securities laws that artists are now "compelled" to file a lawsuit so they can protect their livelihoods.

Wow. We have reached the point where the SEC’s application of securities laws is so arbitrary and unlawful that *artists* are compelled to sue the SEC directly in order to protect their livelihoods. The SEC is broken. (And fwiw I have thoroughly enjoyed many of these songs!) https://t.co/F6mfq2LJ6g

The Blockchain Association, a collective crypto group that includes some of the biggest digital asset firms, asserted that the SEC has no authority over NFT art. "We support the plaintiffs in their quest for legal clarity," the group said.

2/ The SEC does not have authority over NFT art. And it is unreasonable to expect musicians, designers, and other artists to hire lawyers to weigh in on whether art sales will be considered a securities offering by the rambling SEC.https://t.co/zAN8aPg1sx

Bob Summerwill, the executive director of the ETC Cooperative, said Frye and Mann have taken on a "noble fight."

Oh wow.Well all the very best wishes to you.A noble fight and you have a fantastic lawyer in @ohaiom!

NFT interest remains strong despite downturn

The news of the lawsuit comes as NFTs retain the interest of investors, even as other tech sectors appear to have become the new thing and sales declined.

The latest data showed that investors are still heavily invested in NFTs as new artists and derivative products continue to emerge.

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