They are seeking a ruling from a court in Louisiana stating that their newly launched variable token (NFT) project will not violate U.S. securities laws.

The lawsuit argues that the SEC has asserted jurisdiction over the entire NFT industry through two enforcement actions against NFT projects in 2023 – Impact Theory and Stoner Cats. It is stated that the SEC exercises this authority without receiving it from Congress.

Named as defendants are SEC Chairman Gary Gensler, SEC commissioners Hester Peirce, Caroline Crenshaw, Mark Uyeda and Jaime Lizarraga, and Eric Bustillo, the SEC’s regional director in Miami, Florida.

The lawsuit states that under Gensler, the SEC “interpreted its authority overly broadly in the context of digital assets” and failed to provide clarity to NFT artists when offers and sales of NFTs could be considered securities offerings.

The lawsuit argues that the SEC’s efforts to bring NFTs under its regulatory purview do not meaningfully approach the potential far-reaching consequences of securities laws on art. The SEC declined to comment on the case.

It is stated that possible enforcement actions against NFT projects “have a chilling effect on NFT artists across the US.” The plaintiffs in the case are conceptual artist and law professor Brian Frye and musical artist Jonathan Mann, known as “Song a Day Mann.”

Both have delayed their pending NFT projects until they can secure protection from the threat of future scrutiny or litigation by the SEC. His lawyers argue that such a lawsuit would be “economically devastating to art projects.”

Companies offering large NFT artworks are also affected by the SEC’s actions. A day after Mann and Frye’s lawsuit, sports betting company DraftKings announced it was shutting down its NFT business due to “recent evolving legal situations.” DraftKings is facing a class-action lawsuit alleging that its NFT sales violate securities laws.

Last month, Dapper Labs, the company behind the popular NBA Top Shot “Moments,” paid $4 million to settle a class-action securities lawsuit. Frye and Mann’s lawsuit highlights two recent SEC enforcement cases against NFT projects, Impact Theory and Stoner Cats.

In August 2023, the SEC announced charges and settlement against Impact Theory for offering unregistered securities through Founder’s Keys NFTs. Prior to its settlement with Impact Theory, the SEC had not issued formal guidance on NFTs and had not taken public action against any NFT creators.

As part of the settlement with the SEC, Impact Theory agreed to pay more than $6 million in restitution and civil penalties and agreed to destroy all Founder’s Keys NFTs it owned.

“The SEC required artists to destroy their art,” the lawsuit attorneys claim. In September 2023, the SEC announced charges and settlements against another NFT project called Stoner Cats. This time, the company agreed to pay a $1 million civil penalty and destroy all Stoner Cats NFTs it owned.

Frye had previously requested a no-action letter from the SEC for two other NFT projects, but did not receive a response. Similarly, companies such as ConsenSys, Blockchain Association, Beba, and DeFi Education Fund have also filed preemptive lawsuits against the SEC.