Since around 2013, Jonathan Mann, known as “Song a Day Mann”, has made his living by writing and posting a new song each day. While his whimsical and often topical songs have gained traction online, monetization remained challenging until he discovered non-fungible tokens (NFTs). By attaching blockchain-based tokens to his songs, Mann found a way to sell unique copies directly to buyers, avoiding intermediaries and gaining additional revenue from secondary sales.
However, a recent move by the US Securities and Exchange Commission (SEC) threatens this new business model. In August 2023, the SEC announced a settlement of more than $6 million with media company Impact Theory, which sold NFTs containing digital graphics. Soon after, the SEC reached a similar settlement with celebrity-backed project Stoner Cats, involving a $1 million fine. In both cases, the SEC claimed these projects conducted unregistered offerings of crypto asset securities in the form of NFTs, indicating a shift towards classifying some NFT art pieces as securities.
In response, Mann and conceptual artist and lawyer Brian Frye filed a lawsuit against the SEC in a Louisiana federal district court on July 29. They are seeking a declaratory judgment to assert that their NFT art projects do not violate US securities laws. Mann plans to sell 10,420 NFTs of remixes of his song “This Song Is a Security”, while Frye’s project involves 10,320 NFTs with economic structures identical to the Stoner Cats NFTs.
The lawsuit aims to compel the SEC to reconsider its stance on NFT regulation. The core issue revolves around the definition of a security, as established by the 1946 US Supreme Court ruling on the Howey Test. This test defines a security as an investment of money in a common enterprise with an expectation of profits derived from the efforts of others. Applying this test to art, particularly NFT art, remains complex and contentious.
Frye and Mann’s case seeks to differentiate between artistic endeavors and investment contracts, emphasizing the need to protect the livelihood and creative freedom of NFT artists. As the debate unfolds, the potential for a regulatory shift looms over the burgeoning NFT art market.
For more details on the ongoing lawsuit, visit the source article.