SEC Charges Stoner Cats for Unregistered NFT Offering
The United States Securities and Exchange Commission (SEC) has taken action against Stoner Cats 2 LLC for conducting an unregistered offering of non-fungible tokens (NFTs) that raised $8 million from investors. This move has sparked some disagreement within the regulatory commission.
The SEC has fined the creator of Stoner Cats $1 million for offering unregistered securities through the popular NFT collection. Gurbir S. Grewal, director of the SEC’s enforcement division, emphasized that it is the economic reality of the offering that determines whether it is an investment contract, regardless of the labels or underlying objects involved.
Stoner Cats: A Successful NFT Project
Stoner Cats was launched in July 2021 as a limited collection of 10,000 NFTs on the Ethereum blockchain. It quickly became one of the most successful projects in the crypto space, with all NFTs selling out in less than 35 minutes.
The SEC’s order states that the Stoner Cats team used their knowledge of crypto projects to artificially inflate the price of their NFTs and created expectations among investors that they would profit from selling them on the secondary market.
Royalties and Animated Show
The Stoner Cats NFTs included a 2.5% royalty for each transaction on the secondary market, providing assurance to owners that the project would continue to support the animated show. The proceeds from the NFT offering were used to fund Stoner Cats, a cartoon series featuring well-known voices such as Ashton Kutcher and Jane Fonda.
SEC Commissioners Disagree
Hester Pierce and Mark Uyeda, two SEC commissioners, have expressed their disagreement with the commission’s decision. They argue that the Stoner Cats NFTs are similar to collectibles like Star Wars memorabilia from the 1970s and should not be considered investment contracts. They believe the SEC should protect artists’ ability to sell their work and engage with fans.
Hot Take: SEC Cracks Down on Unregistered NFT Offerings
The SEC’s enforcement action against Stoner Cats for conducting an unregistered NFT offering highlights the regulatory scrutiny surrounding the crypto industry. While some commissioners have expressed dissent, emphasizing the need to support artists and creative endeavors, the SEC maintains that the economic reality of an offering determines its classification as a security. As NFTs continue to gain popularity, it is crucial for market participants to navigate regulatory requirements and ensure compliance.
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