Sept. 13, 2023
We respectfully dissent from the Commission’s second non-fungible token (NFT) settlement, as we did from the first.The application of the Howey  investment contract analysis in this matter lacks any meaningful limiting principle. It carries implications for creators of all kinds. Were we to apply the securities laws to physical collectibles in the same way we apply them to NFTs, artists’ creativity would wither in the shadow of legal ambiguity. Rather than arbitrarily bringing enforcement actions against NFT projects, we ought to lay out some clear guidelines for artists and other creators who want to experiment with NFTs as a way to support their creative efforts and build their fan communities.
Whether an artist is selling numbered versions of physical prints for fans to display on their walls or NFTs for fans to display on social media, she deserves clear guidance about whether and how the securities laws apply. Artists of all kinds have long struggled to support themselves, and NFTs offer a potentially viable way for them to monetize their talents. The fact that money is involved does not transform NFTs into securities.
This enforcement action involves activity that we believe constitutes fan crowdfunding—a common phenomenon in the world of artists, creators, and entertainers. In July 2021, Stoner Cats sold 10,320 NFTs to the public for ether valued at $8.2 million to fund the production of an animated series called Stoner Cats. NFT purchasers received a unique still image of one of the characters in the Stoner Cats series and exclusive access to the series and an online community, as well as access to unspecified, future entertainment content. Several famous writers, animators and voice actors worked on the project.
While updated for the digital age, the Stoner Cats NFTs are not that different from Star Wars collectibles sold in the 1970s. On the heels of the very successful release of Star Wars in 1977, fan excitement was high. To the delight of millions of children that holiday season, the toy company Kenner sold “Early Bird Certificate Packages,” redeemable for future Luke Skywalker, Princess Leia, and R2-D2 action figures and membership in the Star Wars fan club. The sales of these certificates helped to build a die-hard community of Star Wars fans. Would those I.O.U. certificates, which could be re-sold, constitute investment contracts? Using the analysis of today’s enforcement action, the SEC should have parachuted in to save those kids from Star Wars mania.
NFT creators, along with other artists, do not get a free pass from the securities laws. In some instances, sales of NFTs may implicate our securities laws. In applying the securities laws in this space, however, the Commission must take care to preserve the ability of artists to sell their work, build a fan base, and involve that fan base in future creative endeavors. That is what was happening in the 1970s with Star Wars, and that is what was happening here with Stoner Cats. The Stoner Cats NFT purchasers received what they paid for — a still image of a character from the series, access to all six episodes of the Stoner Cat series, and the excitement of being part of a popular phenomenon. The Commission’s application of the securities laws here makes little sense and discourages content creators from exploring ways to harness social networks to create and distribute content. More generally, it contributes to the legal ambiguity facing artists, writers, musicians, filmmakers, and others seeking to build a loyal, engaged following.
 SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
 See, e.g., Crowdfunding artists: beyond match-making on platforms, Socio-Economic Review, Volume 19, Issue 4, October 2021, Pages 1265–1290, https://doi.org/10.1093/ser/mwab006 (“This article analyzes the role that crowdfunding plays for artists who create small-scale projects. We find that artists struggle to reach new audiences and, thus, mainly use this funding tool to transform monetary gifts into reputation for their careers.”).
 As Yoda said, “Always in motion is the future.”
 One of us can speak of this enthusiasm from personal experience.