The SEC Charges Stoner Cats 2 with Conducting Unregistered NFT Offering
The Securities and Exchange Commission has filed charges against Stoner Cats 2 LLC for conducting an unregistered offering of nonfungible tokens (NFTs) that raised $8 million from investors. This is the latest action taken by the agency against an NFT project, following similar charges against Impact Theory last month. The SEC emphasized that it is the economic reality of the offering that determines whether it is considered an investment contract and therefore a security, regardless of the labels or underlying objects involved.
Stoner Cats 2’s Unregistered Offering
Stoner Cats 2, also known as SC2, sold over 10,000 NFTs for $800 each in just 35 minutes. Before and after the public sale of the NFTs, SC2 highlighted certain benefits of owning them, such as the ability to resell them on the secondary market. The SEC’s order states that Stoner Cats marketed its knowledge of crypto projects and suggested that the price of their NFTs could increase, leading investors to believe they would profit from selling them in the secondary market. SC2 received a 2.5 percent royalty from each transaction on a secondary market platform.
Ashton Kutcher, Jane Fonda, and Other Celebrities Involved
Stoner Cats was one of the first TV shows to be fully funded by NFTs. The show features a family of cats voiced by well-known names such as Ashton Kutcher, Jane Fonda, Chris Rock, and Ethereum co-founder Vitalik Buterin. A total of 10,420 unique NFTs were created based on the show’s characters and sold in July 2021. The first six episodes were exclusively accessible to NFT holders.
Regulatory Troubles for Celebrities in the Crypto Space
Several celebrities, including Kim Kardashian, Floyd Mayweather Jr., DJ Khaled, and a group that marketed for failed crypto exchange FTX, have faced regulatory charges related to their involvement in the crypto industry. Last year, Kardashian was charged for unlawfully promoting EthereumMax and agreed to pay over $1 million in penalties. The SEC commissioners Hester Peirce and Mark Uyeda criticized the charges against Stoner Cats NFTs, comparing them to Star Wars collectibles sold in the 1970s.
Akin to Star Wars Collectibles
The SEC commissioners argued that Stoner Cats NFTs are not significantly different from Star Wars collectibles sold in the past. They questioned whether certificates of ownership that could be resold would be considered investment contracts. While Peirce and Uyeda acknowledged the need for securities laws in the NFT space, they also emphasized the importance of preserving artists’ ability to sell their work and engage with their fan base in future creative endeavors.
Hot Take: SEC Continues Crackdown on Unregistered NFT Offerings
The Securities and Exchange Commission has taken another step in its crackdown on unregistered nonfungible token (NFT) offerings. Stoner Cats 2 LLC has been charged with conducting an unregistered NFT offering that raised $8 million. This follows similar charges against Impact Theory last month. The SEC is emphasizing that it’s the economic reality of these offerings that determines their classification as investment contracts and securities. With the increasing popularity of NFTs and celebrity involvement, it’s crucial for both issuers and investors to understand and comply with securities laws to avoid regulatory trouble. However, there is also a need to balance regulation with preserving artists’ ability to sell their work and engage with their fan base in the NFT space.
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