- A pair of artists sued the SEC, seeking declaratory judgment.
- The artists cited past SEC enforcement actions against NFT projects Impact Theory and Stoner Cats.
- The legal filing argued that the agency has no right to oversee digital artwork.
The Securities and Exchange Commission’s (SEC) increasing scrutiny of the crypto industry has left many firms on edge. High-profile cases against industry giants like Consensys and Coinbase have sparked widespread concern about who might be next in the regulatory crosshairs.
In an unexpected turn of events, the crypto community has found unlikely allies in its struggle against regulatory overreach. Two artists, Jonathan Mann and Brian Frye, known for selling their work as NFTs, have taken a proactive stance by suing the securities agency.
SEC Accused of Overstepping Mark
Mann and Frye’s lawsuit challenges the SEC’s authority over digital art. The artists argue that applying securities laws to digital artwork is as flawed as applying them to traditional art.
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The lawsuit referenced recent SEC enforcement actions against NFT projects Impact Theory and Stoner Cats, which resulted in settlements of $6.1 million and $1 million, respectively, which the pair argued were wholly unjustified.ย
Accordingly, the pair stated that their ‘fear of an investigation or enforcement action by the SEC is well-founded,’ prompting them to file the lawsuit as a preemptive measure to avoid being sued by the agency.
In the filing, Mann and Frye contended that the Impact Theory and Stoner Cats NFTs did not constitute securities offerings. They argued that the tokens were not shares in the companies, did not pay any form of dividend, and did not represent a commitment to generate profits for NFT buyers.
โThey were works of digital art, and other than that digital nature, there was little conceptual difference between those series of artworks and, say, Andy Warholโs 1962 series of thirty-two canvases, called โCampbellโs Soup Cans,โ argued Mann and Frye.
The artists are seeking a declaratory judgment, which is used to define rights and obligations before any injury occurs. This approach is particularly relevant in areas of legal uncertainty, such as the gray area around digital artwork.
NFT Sales Sink
While Mann and Frye claimed the SECโs stance on NFTs threatened the livelihood of artists experimenting with novel technologies, NFT sales have continued to decline.
Data from CryptoSlam paints a sobering picture for the NFT market. NFT sales for the week starting July 22 reached $96.3 million, a staggering 96% drop from the all-time high of $2.29 billion recorded in August 2021.
A brief resurgence in NFT sales in Q4 2023, fueled by overall crypto market optimism following the run-up to Bitcoin ETF approvals, offered hope. However, 2024 has seen this uptick reverse, with sales volumes trending downward.
Despite this, NFT advocates remain bullish on the technology’s future. “jprince.sol”, CEO of B+J Studios, pointed to the persistent use of NFT profile pictures as evidence of the format’s enduring appeal.
On the Flipside
- The SEC stated that Impact Theory promoted their NFTs as profitable investments for buyers.
- Arguably, SEC oversight of NFTs legitimizes the market.
- Presidential hopeful Donald Trump vows to dial back SEC oversight if elected.
Why This Matters
Mann and Frye’s lawsuit prompts us to rethink what defines art in the digital age and how it should be regulated. It highlights a broader argument that cryptocurrencies represent a unique category that doesn’t align with existing finance and securities regulations.
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