Stoner Cats Agrees to $1 M in SEC Settlement for Unregistered Offering of NFTs

Summary

• Stoner Cats 2 LLC (SC2) has settled with the SEC for $1 million over charges of conducting an unregistered NFT offering.
• The offering, which raised $8 million, was meant to fund the animated web series Stoner Cats and involved the sale of over 10,000 NFTs.
• The SEC found that SC2's marketing campaign emphasized NFT ownership benefits and celebrity involvement, leading investors to expect profit through NFT resale.
• The SEC found that SC2 violated the Securities Act of 1933 by not registering the offering as a security.

Following charges of conducting an unregistered offering of crypto asset securities in the form of non-fungible tokens (NFTs), Stoner Cats 2 LLC (SC2) has agreed to a cease-and-desist order and a $1 million settlement to the Securities and Exchange Commission (SEC). The offering, which raised around $8 million, was intended to fund an animated web series known as Stoner Cats.

The SEC's order reveals that SC2 sold over 10,000 NFTs at approximately $800 each in just 35 minutes during its July 27, 2021 launch. The order asserts that SC2's marketing campaign promoted the benefits of NFT ownership, including the potential for resale on the secondary market. It also emphasized SC2's Hollywood producer expertise, knowledge of crypto projects, and the involvement of notable actors in the web series, fueling investors' expectations of profit through increased NFT resale value.

Notably, the project was led by Actress Mila Kunis, alongside prominent NFT creators. The series featured a cast that included Kunis, Ashton Kutcher, Chris Rock, Dax Shepard, Gary Vaynerchuk, Jane Fonda, Michael Bublé, Seth MacFarlane, and Vitalik Buterin.

Furthermore, SC2 configured the NFTs to grant a 2.5 percent royalty on secondary market transactions, encouraging trading that resulted in over $20 million changing hands in at least 10,000 transactions. The SEC determined that SC2 violated the Securities Act of 1933 by conducting an unregistered offering.

Gurbir S. Grewal, Director of the SEC's Division of Enforcement, clarified, "It’s the economic reality of the offering – not the labels you put on it or the underlying objects – that guides the determination of what’s an investment contract and therefore a security."

In response, SC2 agreed to a cease-and-desist order and a $1 million civil penalty. The settlement includes the establishment of a Fair Fund to reimburse affected investors and mandates the destruction of all NFTs in SC2's possession. The company is also obligated to publicize the SEC's order on its website and social media platforms.