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31/07/24
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Two Artists File Lawsuit Against U.S. SEC Over Sales of NFTs
Jonathan Mann, a singer and songwriter, as well as Brian L. Frye, a conceptual artist, filed a lawsuit against the United States Securities and Exchange Commission (SEC) regarding whether the commission should regulate art and whether artists should register their artwork, compelled to make public disclosures about the risks of people purchasing their art, and required to comply with the federal securities laws and regulations.
According to the document, which was filed in the U.S. District Court of the Eastern District of Louisiana two days ago, the plaintiffs argue that applying securities laws to artwork does not make more sense in the digital world, as the commission initiated a campaign to assert jurisdiction over sales of digital art.
The plaintiffs who sell their artworks in digital forms (as NFTs) argue that NFTs are digital assets and numerous NFTs “simply represent ownership of a work of art.” They believe that the commission’s recent actions suggest that it will consider their art sales as unregistered securities offerings.
“Plaintiffs’ fear of an investigation or enforcement action by the SEC is well-founded, after the SEC’s recent investigations and administrative actions involving NFTs,” reads the filing. They cited past lawsuits brought by the SEC against certain entities that ended up in settlements, noting the commission’s perspective on digital artwork.
The SEC said artworks are securities “when accompanied by royalties and public statements regarding the artist’s current and future endeavors, their hopes for the value of those endeavors, and/or their use of profits to support themselves and their endeavors.”
Hence, the plaintiffs asked the SEC to explain the circumstances that make the offer and sale of NFT securities offerings or sales. The commission has asserted that artworks sold as NFTs are securities since it is expected that they would appreciate in value and could thus be re-sold.
“The SEC’s approach threatens the livelihoods of artists and creators that are simply experimenting with a novel, fast-growing technology or have chosen it as their preferred medium,” said the plaintiffs. Hence, they seek a declaratory judgment that their proposed NFT projects do not violate U.S. securities laws.
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