“We’re not libertarian or anti-government,” says Mann. “What the SEC did directly affects my ability to make a living and, by extension, many other NFT artists. To me, this is what it’s all about: protecting our ability to experiment and make a living on the internet.”
Mann and Fry, represented by attorney Jason Gottlieb, are seeking a “declaratory ruling” from the SEC that by releasing two specific NFT art projects, they “are not violating US securities laws,” according to the lawsuit. Mann wants to sell 10,420 NFTs, for roughly $800 each, to remixes of “This Song Is a Security,” a song referencing the 2023 SEC action. Meanwhile, Frye’s project for cryptographic tokens for tangible financial benefits, which will feature 10,320 NFTs minted on Ethereum, has economics “literally identical to Stoner Cats on purpose,” he says.
The crux of the case, Fry adds, is about the great art of NFTs and “using NFTs the way most people are – to sell them.” The point is to get SEC regulators to have a “long, hard think” about what’s within their purview, he says.
Security against Art
In 1946 a US Supreme Court decision in the Howey Company, which sold citrus groves to profit-sharing buyers, cemented the test for determining what is a security. The “Howie Test” defines securities as “an investment of money in a common enterprise with the expectation of profits from the efforts of others.”
In other words, Gottlieb says, this makes the investment contract a security. This can be difficult to apply to analog or NFT-related art. “When you sell a certificate, what you’re really doing is essentially selling art collectors an interest in your art,” Fry says. This means that buyers are investing in the expectation that “you will become more famous.” This fame, in turn, makes the art more valuable.
If you look at it that way and apply the Howie test, Gottlieb says, it can look a lot like art buyers are investing in a joint venture and expecting to benefit from the artist’s efforts. The difference, Gottlieb says, is that “artists don’t owe you anything.” You might hope your purchase is autographed Bro the album will rise in value as Charli XCX continues to sell out concerts, but that wasn’t promised with the sale of the record. The same, the lawsuit claims, is true of a digital caricature of a cat linked to some blockchain-based code.
