Breaking: US SEC Sues Stoner Cats for Offering Unregistered NFT Securities

The US Securities and Exchange Commission (SEC) has recently taken legal action against Stoner Cats 2 LLC (SC2), a prominent player in the world of Non-Fungible Tokens (NFTs). 

Allegations Against Stoner Cats

The SEC alleges that SC2 conducted an unregistered offering of crypto asset securities in the form of NFTs, raising approximately $8 million from investors to finance an animated web series titled Stoner Cats.

The SEC’s investigation revealed that SC2’s marketing campaign heavily emphasized the benefits of owning Stoner Cats NFTs. Specifically, the marketing materials highlighted the option for NFT owners to resell their tokens on the secondary market.

Director of the SEC’s Division of Enforcement, Gurbir S. Grewal emphasized that the economic reality of the offering, not the labels or underlying objects, guides the determination of what constitutes an investment contract and therefore a security. He noted that SC2’s marketing strategies created an environment where investors believed they would profit from selling Stoner Cats NFTs on the secondary market.

In addition to these marketing strategies, the SEC order disclosed that SC2 had set up the Stoner Cats NFTs to pay the business a 2.5 percent royalty on every secondary market transaction involving the tokens. This royalty incentive and marketing efforts encouraged individuals to engage in deals totaling more than $20 million, including at least 10,000 Stoner Cats NFTs.

This case is a notable development in the ongoing effort to regulate digital assets and protect investors in the burgeoning NFT market. Last month, the SEC filed similar charges against Impact Theory, the Los Angeles-based media and entertainment company for selling unregistered securities.

The SEC Resolution and Charges

The SEC, therefore, concluded that SC2 had violated the Securities Act of 1933 by offering and selling crypto asset securities to the public without proper registration. 

In response to the SEC’s findings, SC2 neither admitted nor denied the allegations but agreed to a cease-and-desist order in addition to paying a civil penalty of $1 million. The order also establishes a Fair Fund to return the money paid by affected investors who purchased the NFTs. 

Furthermore, SC2 has committed to destroying all Stoner Cats NFTs in its possession and is obligated to publish notice of the SEC’s order on its website and social media channels.