Suing The SEC | Jonathan Mann & Brian Frye

Bankless Nation, it's not every day that some of our own sue the SEC, but that is what's happening today. Jonathan Mann, otherwise known as Song A Day Man, and previous podcast guest Brian Fry are suing the SEC preemptively in order to protect their livelihood and their passions. They want to make sure that their ability to produce art and sell them as cryptographic tokens on Ethereum is a legal thing to do without triggering the ire of Gary Gensler and the securities law of 1933. Because as of now,

As a result of the SEC lawsuit and settlement against Stoner Cat, the 2021 animated TV show, the precedent stands as art sold as tokens are unregistered securities and therefore illegal, making the SEC the de facto regulator of digital art, so long as it has a digital token to go along with it.

Is the SEC supposed to regulate art?

Does it even want that for itself? How did we end up in a place where artists and their art are colliding with the securities regulators? What timeline are we even on?

Today on the show, Jonathan Mann and Brian Fry discuss their lawsuit that they are serving the SEC, the game theory behind it, and what its impact will be for our industry when they eventually bring home the dub. So let's go ahead and get right into the episode with Brian and Song a Day Man. But first, a message from these fantastic sponsors that make the show possible. Bankless Nation, I'm here with Jonathan Mann, otherwise known as Song a Day Man, and Brian Fry, previous podcast guest and lawyer. Actually, both of you have been on the podcast if you count all of the times that we have added Jonathan Mann songs to the end of our weekly roll up. But in other words, Jonathan, welcome to the Bankless Podcast in live and present form.

Thank you so much. I am very excited. As you know, a big fan.

And Ryan, we had you on to talk about our NFTs securities, which was one of my more interesting episodes. And it was really not trying to actually ascribe a legal assertion as to whether they are or not, but more of a thought experiment as to the question of securities and the idea of NFTs. And you're kind of back for round two. So, gentlemen, who wants to kind of drop the hammer on what we are actually doing here today? What you guys have already done here today in the legal process of the United States, but also here on the podcast episode today. Who wants to wants to take a lead here?

Let me give some background. Let me set the stage and then I'm gonna and then we'll let Brian uh do his brilliant lawyer lawyering uh to take us deeper.

Um

the SEC brought a case against StonerCats back in 2023. If folks will remember what Stoner Katz was, it was a big project that launched in 2021, sort of in the height of the frenzy of that time. Um it involved Ashton Kutcher and Mila Kunis.

Although, as I sort of like found out later on, and as I dug into it, it was really made actually by just some like working Hollywood animators, just like people who I actually really identify with as just like artists who are just trying to get by making their work. And they just happen to like hook up with Mila Kunis and hit her whole thing, and then she brought in the NFTs. And then they get slapped with this SEC lawsuit claiming that they were selling unregistered securities.

The NFT's aspect of this cartoon animation were unregistered security.

The cat JPEGs that they sold,

according to the SEC, were investment contracts that they were doing with the people that bought them.

If you read the complaint, if you read the sort of action that the SEC took against them, and what ended up happening was that they ended up settling for a million dollars, which is like

what I learned later is like a million dollars is like a really good deal in this case, actually.

Um, and it would have cost them many times that to fight.

So they settled. Um, they a bunch of things, but like

uh they had to like one weird thing was that they had to destroy, they they had some stoner cats left over that they were going to use for um contests and stuff.

One of the pieces of the SEC thing was that like they had to destroy any stoner cats that they had in their possession, they had to like burn their artwork.

Anyway, when this happened, I got really angry because as I read through the complaint,

as I read through the action that they took, I realized that it sort of implicated everybody in the NFT space. It implicates me, it implicates Brian,

it implicates you, David. If you've ever sold, I think you've sold an NFT at some point, like you guys have bankless NFTs. Like we are all implicated because it's so broad and there's no kind of like it doesn't make sense. And yeah, so I got really angry by this case. I wrote a song.

Jonathan, explain a little bit of your backstory. Jonathan song a day man. Why why are you so angry? How is this relevant to you?

Yeah, well, since 2022, I've been basically making my living selling my songs as NFTs. Every day I make a song, I put it on my website to go up for auction. Um, you know, we're in this kind of fallow period for NFTs, but you know, I have like a small and um hardy uh band of people that want to buy the songs, and they do, and you know, sometimes they go viral and they get.

More money, and that's how I've been making my living.

So I took this sort of as a you know direct affront to my livelihood in a lot of ways. And just like you know, everybody that I know who's making NFTs, there's so much creativity here. There's so much

just brilliant artists doing their thing

to feel like we are all implicated in whatever machinations the SEC has going on.

Made me so angry that I wrote a song called This Song is a Security, which I believe you guys actually played that week at the end of the uh bank closed up at the end of the roll-up.

Um

and as a result of that song, I started talking to some like lawyers in the space and talking about like what what would it actually take to like take this fight to the SEC? How would that work?

And,

you know, the m the the balls were rolling, and they said, Do you know anyone else who might be interested in suing the SEC in order to?

Get some clarity on whether NFTs are actually securities or not. And I said, I know just the person,

my friend Brian Fry, who I actually originally heard on Banklists. That's the first time I ever heard of Brian.

Uh, who, you know, he can introduce himself. He's a brilliant uh lawyer, but also an artist. He has this kind of uh conceptual artist lawyer crossroads that I imagine he may want to.

One of one

Or one of one intersection.

So when when these lawyers who are talking to you said, hey, we think it would be better if we have at least one other artist on this case, it sort of helps us cover more ground and we can.

I said,

Let's talk to Brian. And Brian said, Let's do it.

And so Brian, if you want to.

and tell it tell us your role in this whole story.

Yeah, so I've been waiting for this lawsuit for 20 years.

Right.

I started thinking about this problem when I was a baby lawyer at Sylvan and Cromwell, working on securities law. And the more I looked at securities, the more I thought to myself,

that looks an awful lot or sounds an awful lot like conceptual art. And everyone just kind of looked at me like I was crazy. And what are you talking about? And that doesn't make any sense, so on and so forth.

So in in nine in 2019,

I actually wrote a or other.

I released a work of securities art

titled SEC No Action Letter Request, which I styled in the form of Prospectus that I wrote as a law review article, in which I described how I was sending a no action letter request to the SEC,

proposing to sell a work of conceptual art titled SEC No Action Litter Request, consisting of sending a no action letter request to the SEC.

Right. And telling them, like, according to everything that you say, what I'm doing is issuing an unregistered security. So you really ought to tell me I'm not allowed to do this.

And unsurprisingly, the SEC uh declined

to respond to my no action letter request. Although a young friend of mine did manage to eventually FOIA from them an almost entirely redacted set of emails that preserved nothing other than c them calling my theories

fanciful.

Right? Well

Fast forward to 2021, NFT market explodes, and I'm like, wait a minute, this is just proving everything I said in my article. They said before, well, this isn't really a security because people wouldn't really buy it, and therefore it's not a real market. And I'm like, hold my fucking beer, man, right? People uh

people are gonna buy this. So I mean, I just took that article, I made it into an NFT project, dropped it on to OpenSea, and it sold out in like 20 minutes for like, you know, $30,000 worth of.