Benzinga - The U.S. Securities and Exchange Commission (SEC) has taken action against Stoner Cats 2 LLC (SC2), the creator of the "Stoner Cats" web series, accusing the company of conducting an unregistered offering of crypto asset securities.
These securities were in the form of non-fungible tokens (NFTs) and were used to raise around $8 million to fund the animated web series, according to the SEC.
Such significant developments in the crypto and digital assets space are a focal point of discussions at events such as Benzinga's Future of Digital Assets conference, scheduled for Nov. 14. The conference aims to delve deep into the evolving dynamics of the digital asset world, including the regulatory landscape.
The SEC's order revealed that on July 27, 2021, SC2 sold more than 10,000 NFTs at approximately $800 each, selling out within 35 minutes.
The marketing campaign for the "Stoner Cats" NFTs, both pre and post-sale, emphasized the benefits of owning these tokens.
This included the potential for NFT owners to resell on secondary markets.
"Stoner Cats" is an adult animated series about housecats who become sentient after smoking medical marijuana, which is used to alleviate early signs of Alzheimer's disease, according to Reuters.
The SC2 team also highlighted its expertise as Hollywood producers and the involvement of actors such Ashton Kutcher and Mila Kunis in the web series.
This led investors to anticipate profits, especially if the web series became a hit, which could increase the NFTs' resale value.
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SC2 also set up the NFTs to have a 2.5% royalty for each secondary market transaction, resulting in more than $20 million spent in at least 10,000 transactions.
Gurbir S. Grewal, director of the SEC’s Division of Enforcement, commented on the matter, emphasizing the nature of the offering, rather than its label or underlying objects, determined its classification as a security.
He pointed out Stoner Cats' marketing strategies and the profit potential led to the rapid sale of all NFTs, with most being resold in the secondary market shortly after.
Carolyn Welshhans, associate director of the SEC’s home office, stressed the importance of registering securities, including crypto-asset securities.
She noted that while Stoner Cats sought the benefits of public security offerings, the company overlooked the associated legal obligations.
In response to the SEC's findings, SC2 has consented to a cease-and-desist order and will pay a civil penalty of $1 million.
The order also establishes a Fair Fund to reimburse affected investors.
Furthermore, the SEC stated that SC2 has committed to destroying all NFTs under its control and will announce the order on its official website and social media platforms.
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