A judge on Tuesday dismissed a lawsuit brought by two musical non-fungible token (NFT) creators who sought to block the U.S. Securities and Exchange Commission from pursuing an enforcement action against them.
U.S. District Judge Greg Guidry in New Orleans ruled, that the lawsuit from singer-songwriter Jonathan Mann and law professor and conceptual artist Bryan Frye raised only hypothetical concerns about a securities enforcement action targeting their NFTs.
“The SEC’s future regulation of NFTs is far from resolved,” Guidry wrote. “There is little guidance.”
The SEC and lawyers for Mann and Frye did not immediately respond to requests for comment.
NFTs are digital assets recorded on a blockchain, a public ledger that verifies authenticity and ownership. Each token is unique.
The rise of NFTs covering images, music, video and text has raised novel questions about regulation and intellectual property protections.
In 2023, the creator of the Stoner Cats animated web series agreed to pay a $1 million civil fine to settle SEC charges that it conducted an unregistered offering of crypto asset securities by selling NFTs in the form of digital tickets to exclusively access the show online. Stoner Cats did not admit or deny wrongdoing.
Two SEC commissioners in the Stoner Cats case at the time said the regulator should provide “some clear guidelines for artists and other creators who want to experiment with NFTs.”
Mann and Frye, who were not involved in the case, sued the SEC, opens new tab last year, citing fears that their NFT art sales could be deemed unregistered securities and trigger an investigation or enforcement action. They’ve sold NFTs since 2018. Frye teaches intellectual property at University of Kentucky’s law school.
Their lawsuit said the SEC’s approach “threatens the livelihoods of artists and creators that are simply experimenting with a novel, fast-growing technology or have chosen it as their preferred medium.”
In October, the SEC urged Guidry to dismiss the case, arguing that prior NFT-related enforcement actions “impose no consequences or obligations on plaintiffs.”
Guidry wrote that the SEC’s decision to begin an enforcement action against three “discrete” NFT offerings unrelated to Mann and Frye did not amount to a final SEC action.
The judge said the plaintiffs had not shown that the agency had a settled position on the “marching orders” regulated entities must obey related to NFTs.
The case is Mann v. Securities and Exchange Commission, U.S. District Court for the Eastern District of Louisiana, No. 2:24-cv-01881.
For plaintiffs: Jason Gottlieb of Morrison Cohen; and David Patron of Phelps Dunbar
For defendant: Peter Moores and Alexandra Verdi of the U.S. Securities and Exchange Commission
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