In a recent settlement with the US Securities and Exchange Commission (SEC), the company behind Stoner Cats non-fungible tokens (NFTs) has found itself bearing the hefty obligation to pay a $1 million fine and forfeit its entire stock of NFTs. This decisive action comes in response to allegations that Stoner Cats 2 LLC (SC2) had been organizing an unlicensed offering of cryptoasset securities via its NFTs. SC2 had collected around $8 million from investors with the aim to finance ‘Stoner Cats’, an animated web series.
This NFT series, creatively formulated by actress Mila Kunis, was designed to feature sentient cats and a whole lineup of celebrity voices, including Jane Fonda, Seth McFarlane, Ashton Kutcher, Chris Rock, and even Ethereum co-founder Vitalik Buterin.
Looked through the lens of the SEC, these activities manifested a clear issue. Regardless of the company’s willingness to accept or refute these findings, it was ordered to pay a steep fine and relinquish all its existing NFTs. SC2 was also compelled to make this decision public via its official site and social media channels. Through this stern warning, the SEC underlines the critical importance of legal accountability while dealing with securities transactions.
Selling out in less than an hour, the last year’s Stoner Cats NFT sale was a huge success, generating around $8 million through the sale of 10,420 stoner cats at $800 each. However, the SEC took issue with the company’s marketing tactic, which endorsed the perks of owning the tokens and their potential for resale on secondary markets. This, along with emphasising on their expertise as Hollywood producers and their understanding of cryptocurrency projects, gave the investors a perception of probable profits down the line.
While assigning the Stoner Cats NFTs as a resource for a 2.5% royalty following each secondary market transaction, SC2 even promoted the buying and selling of these digital assets. This marketing approach resulted in transactions worth over $20 million. The order clearly underlines that the nature of the offering is what qualifies it as a security, not what it’s called.
Highlighting the error of SC2’s dealings, Carolyn Welshhans, Associate Director of the SEC’s Home Office, was cited as saying that Stoner Cats was looking to reap benefits from security trading, despite bypassing the legal responsibilities that come attached with it. This case underlines that whether one is dealing with beavers, chinchillas, or any other variety of animal-based NFT, the “economic reality” of the offering is what determines its classification as a security.
Source: Cryptonews
