SEC Charges Stoner Cats NFT Project Over Sale of Unregistered Securities

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Key Takeaways

  • SEC claims that SC2 marketed the NFTs as having the potential for secondary sales 
  • SC2 has agreed to  pay a civil penalty of $1 million.

The U.S. Securities and Exchange Commission (SEC) has taken legal action against the Stoner Cats NFT project, alleging the sale of unregistered securities. Stoner Cats, an NFT-driven cartoon series project, has faced scrutiny from the regulatory authority, marking the second notable case involving NFTs and the SEC.

The SEC’s enforcement action has resulted in significant consequences for the Stoner Cats project. The company behind the NFTs, known as Stoner Cats 2, has agreed to pay a $1 million fine and has also committed to destroying all NFTs within its possession. It is essential to note that this agreement does not entail an admission of guilt.

The Stoner Cats NFT project gained widespread attention due to its association with renowned actors Mila Kunis and Ashton Kutcher, who lent their voices to the animated web series. The primary purpose of the Stoner Cats NFTs was to fund the production of this web series, offering purchasers exclusive access to its content.

Underlying the SEC’s enforcement action is the assertion that Stoner Cats 2 marketed the NFTs as investment opportunities into the project’s efforts to create the animated series. Only those who possessed these NFTs were granted access to watch the show’s six produced episodes. The funds raised from the NFT sales were allocated towards compensating the voice cast, show management, producers, and other personnel involved in the production.

The SEC order also highlights the marketing tactics employed by Stoner Cats 2, emphasizing the potential for secondary sales of the NFTs. The project implied that the qualifications of the creators and the prominence of the actors would contribute to the NFTs’ appreciation in value.

Notably, the NFTs were structured to ensure that Stoner Cats 2 received a 2.5% royalty on every secondary sale. The SEC has estimated that there were at least 10,000 secondary sales, amounting to over $20 million.

A pivotal aspect of the SEC’s order pertains to Stoner Cats’ royalties structure, which could have implications for other NFT projects. The NFTs were designed so that Stoner Cats 2 would receive a 2.5% royalty with every resale, creating an incentive for the project to promote buying and selling the NFTs in the secondary market. The order suggests that the success of the Stoner Cats show could lead to an increase in both the NFTs’ prices and royalty earnings.

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Saniya Raahath
Saniya Raahath

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