Since around 2013, Jonathan Mann’s sole job has been writing and posting a song online each day. With titles ranging from “Yeah, I’m Rocking a Headband” to “Joe Biden, Retire” (posted July 1), his pop tunes are at turns whimsical and topical. Some go viral.
Still, says the Connecticut-based Mann (aka “Song a Day Mann”), monetization was a “slog.” Sales from distribution platform Bandcamp and advertising revenue from YouTube “never amounted to much.” Conference performances and jingle contests filled the gaps. Then came NFTs, which let Mann attach one-of-a-kind blockchain-based tokens to his songs so buyers could easily purchase unique copies online. The tech transformed his music-selling game.
“NFTs are a simple way to capture the monetary upside of [viral] attention,” he says. He could sell his songs directly to buyers without involving third parties that would take cuts, like a record label. Plus, he could program the NFTs so that he’d earn additional revenue through secondary sales. In 2018, his NFT “B-U-I-D-L” (the title is crypto industry slang) was the first tokenized song on the blockchain network Ethereum, he claims, and sold for 2.56 ETH (at time of writing worth more than $5,600). His more popular songs have since sold for the US dollar equivalent of five figures.
Then the game changed again. In August 2023, the US Securities and Exchange Commission announced a settlement of more than $6 million with Impact Theory, a media entertainment company that sold NFTs containing digital graphics. About a month later, the SEC said that it had done the same with a project known as Stoner Cats, which involved celebrity couple Mila Kunis and Ashton Kutcher and sold NFT cartoon cats to finance the production of an animated web series by the same name. (Both Kunis and Kutcher voiced characters, and Kunis’ Orchard Farm Productions helped produce.) Stoner Cats agreed to pay a $1 million fine.
Both projects had, per the SEC, conducted “an unregistered offering of crypto asset securities in the form of purported nonfungible tokens.” In other words, the SEC, which had never provided clear rules surrounding art or NFT sales, had in short order designated some NFT-connected digital art pieces as securities, meaning they’d have to be registered with the commission. Its decisions could shake up how the centuries-old art business operates, argues Mann.
On July 29, Mann and the conceptual artist and lawyer Brian Frye filed a lawsuit in a Louisiana federal district court against the SEC, which begins by asking a simple question: “Should art be regulated by the SEC?”
“We’re not libertarian or anti-government,” Mann says. “What the SEC has done directly affects my ability to make a living and, by extension, many other NFT artists. That’s what it’s about to me: protecting our ability to experiment and make a living on the Internet.”
Mann and Frye, represented by the attorney Jason Gottlieb, are seeking a “declaratory judgment” from the SEC that, by releasing two specific NFT art projects, they “do not violate US securities laws,” per the lawsuit. Mann wants to sell 10,420 NFTs, for roughly $800 each, of remixes of “This Song Is a Security,” a track referring to the SEC’s 2023 actions. Meanwhile, Frye’s Cryptographic Tokens of Material Financial Benefit project, which will include 10,320 NFTs minted on Ethereum, has economics “literally identical to Stoner Cats on purpose,” he says.
The essence of the case, Frye adds, is about NFT art writ large and “using NFTs the way most people are—to sell them.” The point is to get SEC regulators to have a “long, hard think” about what’s in their purview, he says.
Security vs. art
In 1946, a US Supreme Court ruling about the Howey Company, which sold citrus groves to buyers who shared in their profits, cemented the test for determining what a security is. The “Howey Test” defines securities as “an investment of money in a common enterprise with the expectation of profits from the efforts of others.”
In other words, Gottlieb says, it makes an investment contract a security. That can be tricky to apply to art, analog or NFT-affiliated. “When you sell a certificate, what you’re really doing is essentially selling art collectors an interest in your art,” Frye says. That means buyers are investing in the expectation “that you’re going to get more famous.” That fame, in turn, makes the art more valuable.
