The Securities and Exchange Commission (SEC) has charged Stoner Cats 2 LLC (SC2), the creator of the web series Stoner Cats, with conducting an unregistered offering of non-fungible tokens (NFTs), marking the second major enforcement action of the SEC marks. in the NFT space.
The regulatory body found that SC2 had raised about $8 million from investors through the sale of more than 10,000 NFTs, which sold for about $800, to fund the animated series. As the SEC reported, SC2 has agreed to a cease and desist order and a civil penalty of $1 million, without admitting or denying the SEC’s findings.
According to Carolyn Welshhans, Deputy Director of the SEC’s Department of the Interior:
“Registration of securities, including crypto assets, protects investors by providing them with information so they can make informed investment decisions… Stoner Cats wanted all the benefits of offering and selling a security to the public, but ignored the legal responsibilities that come with it. .”
Consequently, the SEC found that SC2 violated the Securities Act of 1933 by offering and selling these cryptoasset securities to the public in an offering that was not registered or exempt from registration.
‘Economic reality’
The SEC order revealed that SC2’s marketing strategy, both before and after the public sale of Stoner Cats NFTs, accentuated the specific benefits of owning the NFTs – particularly the prospect for owners to resell their NFTs in the secondary market . This strategy was possibly driven by the ambitions of a successful web series, which could lead to an increase in the sales value of the NFTs. According to the SEC statement, investors were led to believe they would profit from the sale of the NFTs on the secondary market, driven by SC2’s emphasis on its Hollywood production expertise, its knowledge of crypto projects and the famous actors who were involved in the web series. .
Specifically, the order found that SC2 had configured the Stoner Cats NFTs to provide itself with a 2.5 percent royalty on each secondary market transaction involving the NFTs. This setup, coupled with SC2’s encouragement for individuals to buy and sell the NFTs, resulted in buyers spending more than $20 million on more than 10,000 transactions.
This SEC enforcement action follows another case in which the regulatory agency accused LA-based media company Impact Theory of conducting an unregistered offering of NFTs. These actions indicate that the regulatory body has been actively investigating the NFT markets.
Despite industry-wide calls for “regulatory clarity,” SEC Chairman Gary Gensler has steadfastly maintained that the vast majority of digital assets qualify as securities under U.S. law. In a speech in June, Gensler rejected the view that current securities laws do not adequately apply to digital assets, arguing that relabeling contracts does not change the nature of their “economic reality” – language that was echoed in today’s press release .
Gensler has also rejected claims of “fair notice,” saying some market participants may have made a calculated economic decision to risk enforcement as a cost of doing business.
