The SEC said Stoner Cats violated the Securities Act of 1933 by selling NFTs that qualify as investment contracts. Stoner Cats has agreed to a refund.
The United States Securities and Exchange Commission (SEC) continues its widespread crackdown by going after “Stoner Cats”, an NFT-based web series from Hollywood couple Ashton Kutcher and Mila Kunis. According to the SEC, the NFTs qualify as unregistered securities.
An SEC press release states that Stoner Cats sold over 10,000 NFTs for about $800 each. Upon purchase, the owner of the NFT exclusively accessed all six episodes of the animated series and could resell the NFTs for more money. At each resale, the original holders would receive 2.5% of the selling price as royalty. According to the Commission, over $20 million was spent on a minimum of 10,000 transactions.
The show features anthropomorphic cats exposed to cannabis smoke and become sentient after. Voice actors include popular names like Seth McFarland, Kunis, Jane Fonder, Kutcher, and Chris Rock. Ethereum founder Vitalik Buterin also featured as Lord Catsington in the series. All six episodes of the web series were released between July 2021 and December 2022. By the time the first episode debuted, at least 20% of the NFTs had been resold.
The SEC notes that all Stoner Cats NFTs sold out in 35 minutes, generating $8 million from buyers. The Commission found that as part of the marketing campaign, the Stoner Cats team emphasized several factors influencing people to buy the NFTs. These include expertise as Hollywood producers, popular actors involved in the series, and knowledge of crypto projects.
The SEC concludes that the sale of Stoner Cats NFTs qualifies as an unregistered offering “not exempt from registration”. This means that Stoner Cats violated the Securities Act of 1933.
SEC Says Economic Reality of Offering Determines Stoner Cats Violation
According to SEC Division of Enforcement Director Gurbir S. Grewal, “Regardless of whether your offering involves beavers, chinchillas or animal-based NFTs, under the federal securities laws, it’s the economic reality of the offering – not the labels you put on it or the underlying objects – that guides the determination of what’s an investment contract and therefore a security.”
Stoner Cats has agreed to a cease and desist order without admitting or denying the SEC’s allegations. The team also agreed to pay a $1 million civil penalty, in addition to setting up a Fair Fund to return “monies that injured investors paid to purchase the NFTs”. In addition, Stoner Cats agreed to destroy all the NFTs and publish a notice of the SEC order on its social media pages and website.
Impact Theory Violation
Last month, the SEC recently went after Los Angeles-based entertainment company Impact Theory over similar allegations. According to the Commission, Impact Theory sold “Founder’s Keys” NFTs to several investors, raising more than $30 million. The SEC noted that Impact Theory sold the NFTs and encouraged investors to buy them as part of investments in the company. Impact Theory promised buyers profits if the company’s plans become successful.
Also, the company said its purchases would receive ‘tremendous value’ as it tries to ‘build the next Disney’. According to the Commission, the NFTs were investment contracts qualified as securities. Like Stoner Cats, Impact Theory also agreed to an SEC cease-and-desist order and will pay at least $6.1 million as a civil penalty, disgorgement, and prejudgment interest.