Two American artists have initiated legal proceedings against the U.S. Securities and Exchange Commission (SEC), seeking a declaratory judgment from a Louisiana court that their upcoming non-fungible token (NFT) projects do not infringe upon U.S. securities laws.

The plaintiffs, conceptual artist and law professor Brian Frye, and musical artist Jonathan Mann, known as “Song a Day Mann,” have lodged a robust complaint within the anti-regulatory Fifth Circuit. This complaint accuses the SEC of leveraging two 2023 enforcement actions—Impact Theory and Stoner Cats—as a basis for extending its jurisdiction over the entire NFT sector without explicit congressional authorization.

Named defendants include SEC Chair Gary Gensler and four other SEC Commissioners—Hester Peirce, Caroline Crenshaw, Mark Uyeda, and Jaime Lizarraga—as well as Eric Bustillo, regional director of the SEC’s Miami office. The lawsuit asserts that under Gensler’s leadership, the SEC has adopted an excessively broad interpretation of its regulatory authority over digital assets, failing to clarify when the sale of NFTs might be considered securities offerings.

The complaint argues that the SEC’s enforcement actions have induced a chilling effect among NFT artists nationwide. Frye and Mann, each poised to launch NFT projects, are withholding their initiatives until they receive judicial protection from the “credible threat” of SEC investigation or litigation, which their attorneys claim would be “economically devastating” to their creative endeavors.

This legal uncertainty impacts not only individual artists but also major companies in the NFT space. Following the lawsuit’s filing, DraftKings announced the abrupt shutdown of its NFT business, citing “recent legal developments” and ongoing litigation over alleged securities law violations. Similarly, Dapper Labs recently settled a class action lawsuit for $4 million over its NBA Top Shot “Moments” NFTs.

Frye and Mann’s lawsuit highlights two pivotal SEC actions: the Impact Theory and Stoner Cats cases. In August 2023, the SEC charged and settled with Impact Theory for allegedly selling unregistered securities via their Founder’s Keys NFTs, resulting in over $6 million in penalties and the destruction of the remaining NFTs. Despite dissent from Commissioners Peirce and Uyeda, who contended that the NFTs did not constitute investment contracts, the SEC proceeded with another enforcement action against Stoner Cats in September 2023, demanding a $1 million penalty and the destruction of unsold NFTs.

The plaintiffs argue that these actions signal the SEC’s intent to regulate digital art markets and potentially the broader art market, creating a precarious environment for artists and innovators. Frye’s prior attempts to seek no-action letters from the SEC for other NFT projects were met with silence, prompting the need for judicial intervention.

This lawsuit joins a series of preemptive legal challenges against the SEC by various entities, including ConsenSys, the Blockchain Association, and Beba, seeking to curtail the SEC’s expansive regulatory claims over digital assets and markets.