SEC Charges Creators of “Stoner Cats” NFT Series with Conducting Unregistered Offering
The Securities and Exchange Commission (SEC) has charged the creators of the animated web series “Stoner Cats” with conducting an unregistered offering of crypto asset securities in the form of non-fungible tokens (NFTs). The series, produced in part by Mila Kunis and voiced by several celebrities, including Ashton Kutcher and Chris Rock, raised approximately $8 million from investors to finance its production.
Stoner Cats 2 LLC (SC2) has agreed to a cease-and-desist order and to pay a civil penalty of $1 million without admitting or denying the SEC’s findings. The SEC accused SC2 of seeking the benefits of offering and selling a security to the public while disregarding the legal responsibilities that come with such offerings.
The SEC’s Carolyn Welshhans stated, “Regardless of whether your offering involves beavers, chinchillas, or animal-based NFTs, under the federal securities laws, it’s the economic reality of the offering that guides the determination of what’s an investment contract and therefore a security.”
The web series “Stoner Cats” tells the story of a woman using medical marijuana to alleviate early Alzheimer’s symptoms, aided by her family of cats. It was created by Ash Brannon, Chris Cartagena, and Sarah Cole. The series was produced using NFTs, with episodes accessible only to NFT holders. The main cast included Mila Kunis, Ashton Kutcher, Chris Rock, Jane Fonda, Michael Buble, and Seth McFarlane.
SC2 offered more than 10,000 NFTs for sale in July 2021, priced at approximately $800 each, and they sold out in just 35 minutes. The marketing campaign emphasized the benefits of owning these NFTs, including the option to resell them on the secondary market. SC2 configured the NFTs to provide a 2.5 percent royalty for each secondary market transaction, leading to over $20 million in transactions.
The SEC found that SC2 violated the Securities Act of 1933 by conducting an unregistered offering of crypto asset securities to the public. This case highlights the regulatory scrutiny surrounding NFTs and the importance of compliance with securities laws in the crypto space.
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