In a significant development in the world of cryptocurrency and entertainment, the Securities and Exchange Commission (SEC) has taken enforcement action against the team behind the popular animated web series, “Stoner Cats.” This action revolves around allegations that the non-fungible tokens (NFTs) associated with the series were unlawfully offered as unregistered securities. The web series, which boasts a star-studded cast including Mila Kunis and Ashton Kutcher, has gained notoriety for its innovative funding approach through NFTs. This article delves into the details of the SEC’s enforcement action and its implications for the NFT industry.
The Unregistered Securities Issue
The SEC’s order, issued on a Wednesday, asserts that the company responsible for “Stoner Cats,” known as Stoner Cats 2 (SC2), engaged in the unlawful sale of NFTs tied to the animated web series. These NFTs were designed to generate royalties for their holders and were utilized to finance the production of the show. According to the order, SC2 managed to amass a staggering $8 million in sales by selling approximately 100,000 Stoner Cat NFTs, each representing characters from the show. The sales took place in July 2021.
What raises regulatory concerns is the way SC2 promoted these NFTs to the public. The SEC alleges that SC2 embarked on an extensive media campaign, both prior to and after the initial NFT offering. This campaign purportedly linked the success of the “Stoner Cats” web series directly to the value and profitability of the NFTs. As a result, investors were led to believe that these NFTs held the potential for substantial returns.
The SEC’s Position
In its enforcement action, the SEC argues that SC2’s actions violated securities laws, as they offered unregistered securities to the public. According to the SEC’s filing, “SC2 engaged in this conduct without registering the offering of the Stoner Cats NFTs.” This failure to register these securities, despite their inherent investment-like characteristics, has led to regulatory intervention.
The Settlement
In response to the SEC’s enforcement action, Stoner Cats 2 reached a settlement. The company neither admitted nor denied wrongdoing but agreed to several key provisions. These include paying a $1 million fine and destroying all remaining Stoner Cat NFTs in its possession. Moreover, SC2 has committed to establishing a fund aimed at reimbursing individuals who invested in these tokens, signalling its willingness to rectify the situation.
“Stoner Cats” Web Series Overview
“Stoner Cats” is an animated web series that features anthropomorphic cats gaining sentience through their exposure to cannabis smoke. This unconventional premise has garnered significant attention and intrigue within the entertainment industry. The series debuted with six episodes released between July 2021 and December 2022. Notably, “Stoner Cats” boasts an impressive ensemble of Hollywood actors, including Mila Kunis, Seth MacFarlane, Chris Rock, Jane Fonda, Dax Shepard, and Ashton Kutcher. In a surprising twist, Ethereum founder Vitalik Buterin lends his voice to the character of Lord Catsington within the show.
The SEC’s Scrutiny
The SEC’s scrutiny of “Stoner Cats” NFTs centres on the manner in which the project financed its production and rewarded token holders. According to the SEC, Stoner Cats NFT holders were incentivized to engage in trading activities by receiving a 2.5% royalty for each secondary-market transaction involving the collectibles. This royalty scheme encouraged individuals to actively buy and sell these NFTs, leading to over 10,000 secondary transactions valued at more than $20 million, as per regulatory findings. Remarkably, at least 20% of these NFTs were resold even before the first episode of the “Stoner Cats” web series had aired.
The Involvement of Mila Kunis’ Production Company
Notably, Mila Kunis’ production company, Orchard Farm Productions, is linked to the “Stoner Cats” project. According to the series’ website, Orchard Farm Productions supported the series. However, as of the time of writing, there has been no immediate response from an Orchard Farm executive regarding the SEC’s enforcement action.
Implications for the NFT Industry
This case is not the first instance of regulatory authorities targeting NFT makers over alleged securities offerings. Just last month, the SEC initiated enforcement action against NFT maker Impact Theory. These actions highlight the increasing scrutiny and regulation that the NFT space is encountering. As NFTs continue to gain popularity and represent innovative ways of monetizing digital content and creations, it is essential for creators and investors to be aware of the evolving legal landscape.
Conclusion
The SEC’s enforcement action against Stoner Cats 2 for ‘unregistered’ NFT offerings has cast a spotlight on the intersection of entertainment and cryptocurrency. The allegations surrounding the sale of unregistered securities via NFTs and the subsequent settlement signal a growing need for regulatory clarity in the NFT market. As the NFT space continues to evolve, stakeholders must remain vigilant and compliant with securities regulations to avoid potential legal ramifications. The outcome of this case could have far-reaching implications for the future of NFTs and their role in funding creative projects in the entertainment industry.
