Jamal Al-Farouq The U.S. Securities and Exchange Commission (SEC) has indicted Stoner Cats 2 LLC (SC2) for the unauthorized offering of crypto asset securities in the guise of non-fungible tokens (NFTs). The entity garnered approximately $8 million from investors to fund an animated internet series.
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SEC Takes Legal Action Against Stoner Cats 2: NFTs Classified as Unregistered Securities in an $8 Million Transaction
As per the SEC’s formal decree released on Wednesday, SC2 auctioned over 10,000 NFTs at a price of roughly $800 each on July 27, 2021. Remarkably, all tokens were sold within a mere 35 minutes. The promotional campaign accentuated advantages such as the option for investors to re-sell these NFTs on secondary markets, noted the SEC.
SC2 also spotlighted the proficiency of its Hollywood production team, expertise in cryptocurrencies, and engagement of renowned actors. These factors contributed to investors’ anticipation of profit, particularly if the secondary sales of the web series succeeded. The initiative was conceptualized by American actress and producer Mila Kunis in association with Orchard Farm Productions.
According to the SEC, SC2 structured the NFTs to yield a 2.5% royalty on all secondary sales and advocated for active trading of these assets. Investors went on to invest over $20 million in at least 10,000 secondary market transactions. However, the SEC’s legal determination confirmed that SC2 transgressed securities regulations by offering these crypto assets to the public without appropriate registration.
Gurbir Grewal, Director of the SEC’s Enforcement Division, stated, “The financial substance of the offering—irrespective of the terminology employed or the foundational objects—serves as the criterion for identifying an investment contract, and consequently, a security.”
In this case, the SEC determined that Stoner Cats took actions such as marketing its cryptocurrency expertise and suggesting that the NFT prices could appreciate—measures that influenced investors to anticipate profits from secondary market sales.
Carolyn Welshhans, an Associate Director at the SEC’s Enforcement Division, observed that the unregistered NFT offering purportedly deprived investors of essential disclosure information vital for informed decision-making. “Stoner Cats sought all the advantages of publicly offering and selling a security but neglected the accompanying legal obligations,” Welshhans commented.
SC2 has consented to a halt-and-desist order, a monetary penalty of $1 million, the destruction of the NFTs in question, and a public notification of the charges. The levied fine will serve to reimburse investors who were purportedly adversely affected by the unauthorized offering. Notably, SC2 neither acknowledged nor contested the findings by the SEC.
This development in the SC2 case arrives in the wake of SEC actions against another NFT project initiated by Los Angeles-based media enterprise Impact Theory. The company reached a settlement agreement with the SEC, which involved the annulment of its NFTs and the withdrawal of royalties.
What are your perspectives on the SEC’s legal actions against Stoner Cats? Please contribute your insights and viewpoints on this matter in the comments section below.
Frequently Asked Questions (FAQs) about SEC Stoner Cats 2 NFT Charges
What entity did the SEC charge for an unregistered NFT offering?
The U.S. Securities and Exchange Commission (SEC) charged Stoner Cats 2 LLC (SC2) for conducting an unauthorized offering of crypto asset securities in the form of non-fungible tokens (NFTs).
How much did Stoner Cats 2 LLC raise from investors?
Stoner Cats 2 LLC raised approximately $8 million from investors through the sale of NFTs intended to finance an animated web series.
What was the price of each NFT?
Each NFT was offered for around $800 and more than 10,000 NFTs were sold.
Who is behind the Stoner Cats 2 LLC project?
The project was conceptualized by American actress and producer Mila Kunis in association with Orchard Farm Productions.
What benefits were highlighted in the NFTs’ marketing campaign?
The promotional campaign accentuated advantages like the option for investors to re-sell these NFTs on secondary markets. The SEC noted this in their formal decree.
What penalty did Stoner Cats 2 LLC agree to?
Stoner Cats 2 LLC has consented to a cease-and-desist order, a monetary penalty of $1 million, the destruction of the NFTs in question, and a public notification of the charges.
Will the penalty be used for any specific purpose?
Yes, the $1 million fine will be used to reimburse investors who were purportedly adversely affected by the unauthorized offering.
What did the SEC say about the economic substance of the offering?
Gurbir Grewal, Director of the SEC’s Enforcement Division, stated that the financial substance of the offering serves as the criterion for identifying an investment contract, and consequently, a security.
Did Stoner Cats 2 LLC admit guilt?
No, Stoner Cats 2 LLC neither acknowledged nor contested the SEC’s findings.
Is this case a standalone incident?
No, this follows other SEC actions against NFT projects, including one initiated by Los Angeles-based media enterprise Impact Theory, which also reached a settlement with the SEC.
More about SEC Stoner Cats 2 NFT Charges
- SEC’s Official Press Release on Stoner Cats 2 LLC Charges
- Understanding Non-Fungible Tokens (NFTs)
- Orchard Farm Productions
- SEC Guidelines on Crypto Asset Securities
- Previous SEC Actions Against NFT Projects
- Profile of Mila Kunis
- Cryptocurrency Regulations in the United States
- Legal Aspects of NFTs
- Impact Theory Official Website
7 comments
so the NFTs are gonna be destroyed? what a waste of digital art, man.
So the SEC’s got its eyes on NFTs now, huh? But I get it, with big names involved like Mila Kunis, people think it’s all legit and just dive in without thinking.
I’ve been saying it for years, regulation was bound to catch up to crypto assets. Mila or no Mila, you can’t sidestep the SEC.
2.5% royalties on secondary sales sounded pretty good, but guess it’s not all sunshine and rainbows in the NFT world.
Wow, 8 mil in just 35 minutes? That’s crazy fast. Stoner Cats 2 really caught the hype train but looks like they skipped some legal steps lol.
was really lookin forward to the animated series. What happens to that now?
Always read the fine print people! Doesn’t matter if it’s a token or a stock, the SEC will come knocking if you’re not careful.