Regulation
Law professor sues SEC in Los Angeles court over NFT art regulation
Brian L. Frye, a law professor and conceptual artist, has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) in a Los Angeles court.
Frye’s lawsuit challenges the SEC’s decision to classify non-fungible tokens (NFTs) as securities, arguing that the classification limits artistic freedom and creates unnecessary barriers for digital artists.
Today, @songadaymann and I continued the @SECGov in Louisiana federal court, seeking a declaration that the SEC cannot regulate the sale of NFT artwork. I have argued that the SEC is abusing its authority for years and now I am testing my theory. Here is the complaint. https://t.co/AD8xYpV0kC
— Brian L. Frye (@brianlfrye) July 29, 2024
The lawsuit comes at a time of heightened debate over how to categorize digital art assets. Frye, known for his unconventional approach to legal issues, believes the SEC’s broad interpretation of securities laws does not support artists who use NFTs.
He cites his project, the “SEC No-Action Letter Request,” as a conceptual work that challenges the application of the Howey Test, a measure used to define securities. Frye never received a response from the SEC, which is the reason for his current lawsuit.
Frye’s lawsuit highlights the broader implications of NFT regulation for the art market. NFTs have seen a resurgence in popularity, with digital artworks fetching high prices at auction. However, the regulatory framework for NFTs remains unclear. Frye argues that digital art sold as NFTs should not be treated as securities, objecting to the SEC’s application of the Howey Test, which was originally designed for traditional investment contracts.
Jason Gottlieb, Frye’s attorney, said the case is about protecting the rights of digital artists and ensuring the SEC stays within its regulatory boundaries. Gottlieb’s involvement has drawn considerable attention due to his previous role in exposing the SEC’s controversial practices in the Utah DEBT BOX case, which led to several resignations within the SEC.
Proud to represent my client and friend Brian Frye @brianlfrye in his courageous and unfortunately necessary lawsuit against the SEC.
Art is not a security, and artists working in digital media should not have to hire expensive securities lawyers just to get their art out there. https://t.co/EHm91didK9
— Jason Gottlieb (@ohaiom) July 29, 2024
In addition, the lawsuit has also attracted political attention. Former President Donald Trump criticized the SEC’s strict approach to regulating the crypto space. Trump has also vowed to remove Gary Gensler, Chairman of the SEC from office if re-elected, promising to end what he calls the “anti-crypto crusade” and the “persecution and weaponization” of digital assets.
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