Is my art a security? This is the question posed by a federal lawsuit filed earlier this month by Kentucky Law professor Brian Fry and singer-songwriter Jonathan Mann, better known online as Song A Day Mann, against the U.S. Securities and Exchange Commission.
The case revolves around the legal standing of non-fungible tokens or NFTs, those pesky pieces of digital art that swept the world before fading into obscurity taking its place beside fidget spinners, the ice bucket challenge, and other bygone fads. The SEC has repeatedly sued specific NFT projects that it says qualify as unregistered securities.
Perhaps most notably, last September the SEC went after the NFT-based cartoon series Stoner Cats, backed by actress Mila Kunis, which featured many celebrity voice actors and artists. The result was a $1 million settlement with the SEC without admitting any wrongdoing. However, the practical effect of this was to put a stop to many artist’s NFT efforts lest they be targeted by the SEC and unable to fork out such a large sum of money.
Brian Fry and Jonathan Mann were not cowed by this result and instead took it upon themselves to force the SEC into issuing a final determination as to what NFTs constitute unregistered securities. Mann published a new song “This Song is a Security” on the same day as the settlement and Fry turned several letters, he sent to the SEC in which he declared his art project to be an illegal, unregistered security into NFTs. Mann further published a song also doubling as a NFT titled “I’m Suing the SEC” to commemorate their lawsuit.
The base argument of the lawsuit asserts that art has always been used as a store of value and sold in series of identical or near-identical derivatives that looks suspiciously like a security. So why is it that when art is made into a NFT and placed on the blockchain that it becomes subject to SEC regulation and enforcement?
No comments have been issued by the SEC on the case as of yet, but this is one to follow closely as the outcome could have wide ranging impacts on art, technology, and the confluence of the two.
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Jason focuses his practice on corporate governance, commercial finance, commercial contracts, and employment law. He advises clients on all aspects of general corporate matters and strategic business decisions including organization structure, operating/shareholder agreements, and private debt and equity offerings.
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