KEY POINTS
Two artists have filed a lawsuit against the US Securities and Exchange Commission (SEC) to determine whether non-fungible tokens (NFTs) should be classified as securities.
The plaintiffs, Brian Frye, a law professor and filmmaker, and Jonathon Mann, a songwriter known as “Song a Day Mann,” sell their art as NFTs. They are concerned that the SEC may interpret their art sales as unregistered securities offerings.
In a court filing on July 29, they questioned whether NFTs should be regulated by the SEC. They asked if artists need to register their art before making it public and whether they must provide disclosures about the risks of buying their art.
The filing states, “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.”
This case is not the first involving legal issues and NFTs due to regulatory uncertainties. Last year in August, the SEC took its first action in an NFT case against Impact Theory, a media company based in Los Angeles. The company was penalized $6.1 million for offering unregistered NFT securities called “Founder’s Keys,” violating securities laws.
In September, the SEC also sued the Stoner Cats NFT project for selling unregistered securities, resulting in a $1 million penalty.
More recently, Dapper Labs settled a lawsuit over NBA Top Shot NFTs for $4 million. Additionally, a US judge denied DraftKings’ motion to dismiss a class action lawsuit alleging that its NFTs are unregistered securities.
Since May, the SEC and financial authorities from South Korea have been in talks about whether to classify NFTs as virtual assets, addressing legal uncertainties amid growing market interest and speculation.
The classification of NFTs remains complex due to their varied purposes. If NFTs cannot be exchanged for money, goods, or services, excluding them from the virtual asset category might be justified. However, if they function as investment tools, including them within the scope of virtual assets becomes a valid consideration according to authorities.
