In a groundbreaking legal confrontation, two NFT artists have initiated litigation against the U.S. Securities and Exchange Commission (SEC) to resolve whether non-fungible tokens (NFTs) fall within the regulatory purview of the agency.

The complaint, lodged by law professor Brian Frye and renowned songwriter Jonathan Mann, known for his “Song a Day Mann” project, targets the SEC and its five commissioners. Filed on Monday in the U.S. District Court for the Eastern District of Louisiana, this lawsuit underscores a critical battle over the classification and regulation of digital art.

Frye and Mann’s legal representatives contend that the SEC is engaging in an aggressive campaign to assert control over the burgeoning NFT market, citing two recent enforcement actions against digital art projects. Both artists have ongoing NFT endeavors and seek a declaratory judgment to clarify the legal status of their work.

Nearly a year ago, the SEC brought its inaugural NFT-related charges against Impact Theory, a YouTube channel and podcast studio. The SEC alleged that Impact Theory had promoted its “Founders Key” NFTs as investment opportunities, implying that buyers could profit if the company succeeded. The agency concluded that these NFTs constituted investment contracts and thus, securities.

Subsequently, the SEC filed a lawsuit against Stoner Cats 2 LLC for conducting an unregistered NFT offering, which raised $8 million. Both cases culminated in settlements.

“The SEC’s overreach threatens the livelihoods of artists and creators exploring innovative digital mediums,” the complaint states. “Artists now face the daunting prospect of SEC enforcement actions for merely distributing visual or musical art in NFT form.”

The SEC has refrained from commenting on the lawsuit.

Ashley Ebersole, general counsel at 0x Labs and a former SEC attorney, highlighted the broader implications of the case. “SEC Chair Gensler’s expansive statements on crypto jurisdiction, coupled with past settlements with NFT projects, justify the concerns of NFT artists seeking legal clarity,” Ebersole noted in an email statement.

Are Taylor Swift Tickets Securities?

Frye and Mann’s legal team drew a provocative parallel, comparing their situation to that of Taylor Swift. They argued that people purchasing Swift’s tickets and music might anticipate potential profits, paralleling the expectations of NFT buyers. The lawyers warned against the hypothetical scenario where the SEC could deem Swift’s songs or collectibles as securities, leading to their destruction—mirroring the agency’s actions against Impact Theory and Stoner Cats 2.

The lawsuit has galvanized support from the crypto community. Katherine Minarik, chief legal officer at Uniswap Labs, expressed her astonishment on X (formerly Twitter), stating, “The SEC’s arbitrary and unlawful application of securities laws has forced artists to take legal action to protect their livelihoods. The SEC is fundamentally flawed.”

The Blockchain Association echoed this sentiment, asserting that the SEC lacks authority over NFT art and emphasizing the unreasonable expectation for artists to hire securities lawyers to navigate these regulatory uncertainties.

This high-stakes legal battle promises to set a precedent for the future of NFTs and digital art, potentially reshaping the regulatory landscape and safeguarding the creative freedom of artists in the digital age.