Why the SEC Is Wrong About NFTs

CoinDesk · 2024-09-03T16:43:06.000Z

In their 2024 book Over Ruled, Justice Neil Gorsuch and Janie Nitze document the dramatic expansion of federal laws. This expansion stems not just from enactments by Congress and decisions of courts, but also from the numerous federal agencies through their arsenal of rules and regulations, informal public guidance and enforcement actions. Federal statutes used to fit in one volume, but now surpass 54 volumes and 60,000 pages. Federal agency rules ran 16 pages in 1936, but now surpass 200 volumes and 188,000 pages. No one knows for sure how many agency regulations have criminal penalties, but one estimate is that the total surpasses 300,000. And, more worrisome, federal agencies sometimes “don’t just write and enforce legally binding rules,” but also “act as prosecutor and judge, too.” This proliferation of laws and regulations may reflect the complexities of modern society. But, as the book details, it has led to tragic consequences with federal laws being over-enforced against individuals, even in ways beyond the law’s intended scope. Especially when laws are over-enforced based on tenuous if not incorrect interpretations, the rule of law is undermined. As Justice Gorsuch and Nitze show, the rule of law “requires that laws that are publicly declared, knowable to ordinary people, and stable.” Unfortunately, that’s not the case with the Securities and Exchange Commission’s opaque treatment of non-fungible tokens (NFTs). Instead, the regulator’s approach adds another sad chapter to the problem of over-enforcement of laws, which paradoxically undermines the rule of law. In 2021, a new market for digital artworks blossomed. NFTs provided artists with an innovative new way to sell their art and collect resale royalties, which provide artists a modicum of financial sustainability. As artists flocked to the burgeoning NFT market, with sales volume hitting $27 billion, the SEC remained silent. Artists had no public guidance on whether the SEC would treat NFTs as securities. Top law firms were unsure. Read more: Brian Frye - Art Is Not a Security But, in 2023, when the NFT market was in a downturn, the SEC added another risk to the ones artists faced: possible SEC prosecution. The SEC announced the settlements of enforcement actions against two NFT projects, which were developing a cartoon cat series and avatar-based game, respectively. The SEC alleged the NFTs were investment contracts and unregistered securities. Although the settlements do not establish legal precedents and the entities admitted no wrongdoing, the SEC required the two projects to destroy their NFTs. Neither project survived. Other businesses, such as GameStop, killed their NFT projects due to “regulatory uncertainty.” Then, in late-August, the SEC showed it’s not done. OpenSea, one of the largest NFT marketplaces, revealed the SEC sent a Wells notice indicating a potential action against the company for allowing the sales of NFTs that were allegedly unregistered securities. Although a Wells notice doesn’t necessarily end in prosecution, it often does. NFT artists and businesses were upset. On social media, some even discussed going to jail. While that fear may be unfounded, the panic is not. The SEC’s strategy of bringing selective enforcement actions against NFT projects and businesses, without promulgating any rules or public guidance related to NFTs, threatens the entire NFT market. The uncertainty will chill artists from creating NFTs and kill business ventures involving NFTs. Regulatory uncertainty isn’t the biggest problem with the SEC’s approach. Instead, as I explain in a forthcoming U.C. Davis Law Review article, the SEC’s approach is likely unconstitutional. Requiring securities registration of artwork NFTs before they can be offered to the public is a prior restraint in violation of the First Amendment rights of the artists. Prior restraints on speech, including pre-publication licensing and registration, “are the most serious and the least tolerable infringement on First Amendment rights,” as the Supreme Court admonished. Prior restraints may mask censorship and chill speech. Even the delay of publication is problematic under the First Amendment. Speech delayed is speech denied. Artists shouldn’t have to hire securities lawyers — or risk prosecution by the SEC — before selling NFTs. Such a regime of prior restraint harms society. As the Supreme Court explained in the election context: “Many persons, rather than undertake the considerable burden (and sometimes risk) of vindicating their rights through case-by-case litigation, will choose simply to abstain from protected speech — harming not only themselves but society as a whole, which is deprived of an uninhibited marketplace of ideas.” The solution to this constitutional problem is simple: the SEC and courts should return to the original public meaning of the Securities Act of 1933 — what the statute actually says; that’s what the Supreme Court recently did in interpreting the National Firearms Act of 1934. In 1933, the original public meaning of “investment contract” referred to a specific type of investment: investors’ payment of money for a contractual right to a share in the profits made by the offeror. When the Supreme Court interpreted “investment contract” in 1946, in SEC v. W.J. Howey Co., it expressly endorsed this ordinary meaning of the term a state supreme court had identified in 1920. Every Supreme Court decision finding an investment contract, including Howey, involved such a contractual right, or “the promise of profits.” Of course, an investment doesn’t have to be titled as an “investment contract” to be one. Because the Securities Act applies to mere offerings, it’s not essential that a contract existed. But, to fall within “investment contract,” the offering must involve a contractual right to a share in the profits made by the offeror. Without it, the offering involves an investment, but not a contractual one. It is not for the SEC or courts to read the word “contract” out of the Securities Act. It serves an important purpose in distinguishing investment contracts from other investments, such as the purchase of artworks and collectibles. Investors permitted by Hermès to buy Birkin bags can reasonably expect to make a profit from Hermès’s assiduous efforts to maintain their rarity and value. But investors’ expectation of profits doesn’t turn Birkin bags into investment contracts. Nor does it with NFTs. Buying collectibles, whether Birkin bags or artwork NFTs, is different in kind from investing in investment contracts: the former lacks the contractual right to profits that the latter has. If the word “contract” in the Securities Act continues to be ignored, it will soon be time for the Supreme Court to step in. The rule of law requires no less. Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

在他们于 2024 年出版的《被推翻的裁决》一书中，大法官尼尔·戈萨奇和珍妮·尼采记录了联邦法律的急剧扩张。这种扩张不仅源于国会的颁布和法院的判决，还源于众多联邦机构通过其大量的规章制度、非正式的公共指导和执法行动。联邦法规曾经只有一卷，但现在已超过 54 卷和 60,000 页。联邦机构规则在 1936 年只有 16 页，但现在已超过 200 卷和 188,000 页。没有人确切知道有多少机构法规规定了刑事处罚，但有人估计总数超过 300,000 条。更令人担忧的是，联邦机构有时“不仅制定和执行具有法律约束力的规则”，还“充当检察官和法官”。
法律法规的激增可能反映了现代社会的复杂性。但是，正如该书所详述的那样，联邦法律对个人过度执行，甚至超出了法律的预期范围，这导致了悲惨的后果。尤其是当法律基于脆弱甚至不正确的解释而过度执行时，法治就会受到破坏。正如戈萨奇和尼茨大法官所表明的那样，法治「要求法律公开宣布、为普通人所知并且稳定」。
不幸的是，美国证券交易委员会对不可替代代币（NFT）的不透明处理并非如此。 相反，监管机构的做法为过度执行法律的问题增添了悲伤的一章，这自相矛盾地破坏了法治。
2021年，数位艺术品的新市场蓬勃发展。 NFT 为艺术家提供了一种创新的方式来出售他们的艺术品并收取转售版税，这为艺术家提供了一定的财务可持续性。当艺术家纷纷涌入蓬勃发展的 NFT 市场，销售额达到 270 亿美元时，SEC 却保持沉默。对于 SEC 是否会将 NFT 视为证券，艺术家没有公开指导。顶级律师事务所并不确定。
阅读更多：布莱恩·弗莱 (Brian Frye) - 艺术不是一种保障
但是，到了 2023 年，当 NFT 市场低迷时，SEC 给艺术家面临的另一个风险增加了：可能被 SEC 起诉。 SEC 宣布了针对两个 NFT 项目的执法行动和解，这两个项目分别开发了卡通猫系列和基于头像的游戏。 SEC 声称 NFT 是投资合约和未注册的证券。尽管和解协议并未确立法律先例，且实体也没有承认有任何不当行为，但 SEC 要求这两个项目销毁其 NFT。这两个项目都没有幸存下来。其他企业，例如 GameStop，由于「监管不确定性」而终止了他们的 NFT 专案。
然后，在 8 月下旬，美国证券交易委员会 (SEC) 表示这件事还没有完成。最大的 NFT 市场之一 OpenSea 透露，SEC 向 Wells 发送了一份通知，表明该公司可能因允许销售据称是未注册证券的 NFT 而采取行动。尽管威尔斯通知不一定会导致起诉，但通常会导致起诉。
NFT 艺术家和企业都感到不安。在社群媒体上，有些人甚至讨论进监狱。虽然这种恐惧可能没有根据，但恐慌却并非如此。 SEC 在不颁布任何与 NFT 相关的规则或公共指导的情况下对 NFT 项目和企业采取选择性执法行动的策略威胁著整个 NFT 市场。这种不确定性将使艺术家不敢创作 NFT，并扼杀涉及 NFT 的商业投资。
监管不确定性并不是 SEC 方法的最大问题。相反，正如我在即将出版的《加州大学》中所解释的那样。戴维斯法律评论文章称，美国证券交易委员会的做法可能违反宪法。要求艺术品 NFT 在向公众提供之前进行证券登记是一种事先限制，侵犯了艺术家的第一修正案权利。正如最高法院所告诫的那样，事先对言论的限制，包括出版前许可和注册，「是对第一修正案权利最严重和最不可容忍的侵犯」。先前的限制可能会掩盖审查制度并压制言论。根据第一修正案，即使延迟出版也是有问题的。言语延迟就是言语被拒绝。
艺术家在出售 NFT 之前不必聘请证券律师，否则会面临被 SEC 起诉的风险。这种事先限制的制度危害社会。正如最高法院在选举背景下所解释的那样：「许多人不会承担透过个案诉讼来维护自己权利的巨大负担（有时甚至是风险），而是选择简单地放弃受保护的言论——这不仅伤害了他们自己但整个社会被剥夺了不受约束的思想市场。
这个宪法问题的解决方案很简单：美国证券交易委员会和法院应该回归 1933 年《证券法》最初的公共意义——该法规实际所说的内容；这就是最高法院最近在解释1934 年《国家枪支法》时所做的。而支付的款项。当最高法院于1946 年在SEC 诉W.J. Howey Co. 案中解释「投资合约」时，明确认可了州最高法院在1920 年确定的该术语的普通含义。 ，包括Howey ，涉及这样的合约权利，或「利润的承诺」。
当然，一项投资不一定要称为「投资合约」。由于《证券法》仅适用于发行，因此合约并不一定存在。但是，要符合「投资合约」的范围，要约必须涉及要约人分享利润的合约权利。如果没有它，此次发行就涉及一项投资，但不是合约投资。
美国证券交易委员会或法院不应从《证券法》中解读「合约」一词。它具有区分投资合约与其他投资（例如购买艺术品和收藏品）的重要作用。爱马仕允许购买柏金包的投资者可以合理地期望从爱马仕为保持其稀有性和价值所做的不懈努力中获利。但投资者对利润的预期并不会将柏金包变成投资合约。 NFT 也不是这样。购买收藏品，无论是 Birkin 包还是艺术品 NFT，与投资投资合约在性质上有所不同：前者缺乏后者所拥有的合约利润权。
如果《证券法》中的「合约」一词继续被忽视，最高法院很快就会介入。
注：本专栏所表达的观点仅代表作者的观点，不一定反映 CoinDesk, Inc. 或其所有者和关联公司的观点。

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