Since about 2013, Jonathan Mann's only job has been to write and post a song a day. With titles ranging from “Yeah, I'm Rocking a Headband” to “Joe Biden, Retire” (released July 1), his pop songs are alternately quirky and topical. Some go viral.
Still, says the Connecticut-based Mann (aka “Song a Day Mann”), monetization was a “laborious process.” Sales through distribution platform Bandcamp and ad revenue from YouTube “were never big.” Conference appearances and jingle contests filled in the gaps. Then came NFTs, which allowed Mann to attach unique blockchain-based tokens to his songs, allowing buyers to easily purchase one-of-a-kind copies online. The technology transformed his music sales business.
“NFTs are an easy way to leverage the monetary advantage of [viral] attention,” he says. He could sell his songs directly to buyers without going through a third party that would take a cut, such as a record label. He could also program the NFTs to generate additional revenue from secondary sales. In 2018, his NFT “BUIDL” (the title is crypto industry slang) was the first tokenized song on the Ethereum blockchain network, he claims, and sold for 2.56 ETH (worth more than $5,600 at the time of writing). His more popular songs have since sold for the US dollar equivalent of five figures.
Then the rules of the game changed again. In August 2023, the U.S. Securities and Exchange Commission (SEC) announced a $6 million settlement with Impact Theory, a media and entertainment company that sold NFTs containing digital artwork. About a month later, the SEC said it had done the same with a project called Stoner Cats, involving celebrity couple Mila Kunis and Ashton Kutcher, which sold NFT cartoon cats to fund the production of an animated web series of the same name. (Both Kunis and Kutcher voiced the characters, and Kunis' Orchard Farm Productions helped produce it.) Stoner Cats agreed to pay a $1 million fine.
Both projects had conducted “an unregistered offering of crypto securities in the form of purportedly non-fungible tokens,” according to the SEC. In other words, the SEC, which had never established clear rules for the sale of art or NFTs, had within a short period of time classified some digital artworks associated with NFTs as securities, meaning they had to be registered with the commission. Its decisions could shake up the way the centuries-old art business works, Mann argues.
On July 29, Mann and conceptual artist and attorney Brian Frye filed a lawsuit against the SEC in federal district court in Louisiana that begins with a simple question: “Should art be regulated by the SEC?”
“We are neither libertarian nor anti-government,” Mann says. “What the SEC has done directly impacts my ability to make a living and, by extension, that of many other NFT artists. That's what I'm all about: protecting our ability to experiment and make a living on the internet.”
Mann and Frye, represented by attorney Jason Gottlieb, are seeking a “declaratory judgment” from the SEC that they “did not violate U.S. securities laws” by releasing two specific NFT art projects, according to the lawsuit. Mann wants to sell 10,420 NFTs featuring remixes of “This Song Is a Security,” a song that references the SEC's 2023 action, for about $800 each. Meanwhile, Frye's project, Cryptographic Tokens of Material Financial Benefit, which will include 10,320 NFTs minted on Ethereum, has an economics that is “intentionally literally identical to that of Stoner Cats,” he says.
At its core, Frye adds, this case is about NFT art broadly and about “using NFTs the way most people do — which is to sell them.” It's about getting SEC regulators to “think long and hard” about what falls under their purview, he says.
Security vs. Art
A 1946 U.S. Supreme Court decision involving the Howey Company, which sold citrus orchards to buyers who shared in the profits, set the standard for determining what constitutes a security. The “Howey test” defines securities as “investments of money in a common enterprise with the expectation of profits from the efforts of others.”
In other words, Gottlieb says, it turns an investment contract into a security. That can be difficult to apply to art, analog or NFT-related. “When you sell a certificate, you're basically selling art collectors a share of your art,” Frye says. That means buyers are investing in the expectation “that you'll become more famous.” That fame, in turn, makes the art more valuable.