Morrison Cohen Files Lawsuit on Behalf of NFT Artists Against SEC

On July 29, 2024, Morrison Cohen filed a lawsuit in the U.S. District Court in the Eastern District of Louisiana on behalf of law professor and conceptual artist Brian Frye and songwriter Jonathan Mann against the U.S. Securities and Exchange Commission (SEC). The suit requests declaratory and injunctive relief to protect the artists’ forthcoming NFT projects from potential “unlawful enforcement action” brought by the SEC.

The SEC’s 2023 actions against NFT projects Impact Theory and Stoner Cats established the agency’s stance that creators of NFTs may engage in the offer and sale of investment contract securities when they set out to sell their art. Those actions “unilaterally grabbed the regulatory reins over digital art without authorization from Congress, and without undertaking proper (or any) rulemaking procedures,” stated Morrison Cohen’s complaint.

Drawing comparison to Taylor Swift concert tickets or collectibles, the complaint contended that, like NFTs, Swift’s tickets are resold in secondary markets and promoted by the artist herself. Yet, it would be unreasonable for the SEC to classify Swift’s tickets or collectibles as securities.

“Artists nationwide are suddenly confronted with the specter of the SEC attacking their distribution of visual or musical art as an unregistered securities offering. Artists—both established artists and young upstarts—are suddenly faced with a bizarre question: do they need to hire a securities lawyer just to sell their art?” the complaint posited.

A favorable outcome for the plaintiffs could set legal precedent affecting how digital art is treated under U.S. securities laws. As stated in the complaint, “Plaintiffs, like scores of other artists and creators, seek clarity about the SEC's seizure of jurisdiction over digital and traditional art markets — at least, as it applies to their own art projects, which may serve as synecdoche for the art world, as news of the SEC's overreach spreads past the traditional securities industry.”

Partner Jason Gottlieb and Associates Rachel Fleder and Vani Upadhyaya, along with attorneys from Phelps Dunbar LLP, are representing the plaintiffs.

The case has been covered widely in the media, including in Cointelegraph, Unchained, The Block and Law360.