Key Takeaways:
- SEC targets Stoner Cats’ unregistered NFTs, highlighting NFT market regulation.
- Star-studded cast featuring Mila Kunis, Ashton Kutcher, and Ethereum’s Vitalik Buterin.
- SC2 fined $1 million to destroy NFTs and reimburse investors.
LUCKNOW (CoinChapter.com) — The United States Securities and Exchange Commission (SEC) has taken action against the production company behind the popular web series Stoner Cats.
This series features Hollywood stars Mila Kunis and Ashton Kutcher. The SEC has alleged that the company’s offering of royalty-yielding NFTs tied to the series constitutes unregistered securities.
The SEC’s order, issued on September 13, has raised concerns about the legality of the NFTs associated with Stoner Cats.
The order accuses SC2 of offering unregistered securities through NFTs linked to the Stoner Cats web series. The company reportedly generated over $8 million in sales from selling 100,000 Stoner Cat NFTs in July 2021. These NFTs represented characters from the animated series.
According to the SEC’s filing, the production company promoted these NFTs as investments, with the show’s success linked to their value, setting high investor expectations. It notes:
“SC2 engaged in an extensive media campaign to promote the Stoner Cats NFTs both before and after the offering when the NFTs traded in the secondary market engaging in this conduct without registering the offering of the Stoner Cats NFTs.”
Company Agrees to Pay $1M and Token Burning
As part of the settlement, SC2 did not admit or deny wrongdoing but has agreed to pay a $1 million fine. Additionally, the company will destroy all remaining NFTs in its possession. Moreover, SC2 has committed to establishing a fund to reimburse individuals who invested in these tokens.
This destroying process, known as “burning,” involves transferring NFTs to a digital wallet without a private key, rendering them forever inaccessible.
Only the producers and executives of Stoner Cats can burn the NFTs. On the Ethereum blockchain, the respective holders of on-chain tokens can perform this action. This means that the over 5,000 unique wallet holders who own Stoner Cats NFTs can rest assured that their tokens are not at risk of being burned.
The SEC has intensified its scrutiny of cryptocurrency projects endorsed by celebrities. In the previous year, Kim Kardashian agreed to a $1.26 million settlement with the SEC due to her failure to adequately disclose her compensation for promoting a cryptocurrency asset security offered by EthereumMax.
In a statement, Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said:
“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: The Animated Web Show
Through her production company Orchard Farm Productions, Mila Kunis was a driving force behind Stoner Cats. This animated web series revolves around anthropomorphic cats who gain sentience through exposure to cannabis smoke.
The series featured Hollywood icons such as Mila Kunis, Seth McFarland, Chris Rock, Jane Fonda, Dax Shepard, and Ashton Kutcher. Ethereum founder Vitalik Buterin also lent his voice to the show as Lord Catsington.
The SEC order highlights that the company paid all actors, artists, producers, and technical professionals involved in the project from the proceeds and royalties generated by the Stoner Cats NFTs.
NFT Holders and Trading Incentives
Stoner Cats NFT holders were incentivized to trade these digital collectibles, receiving a 2.5% royalty for each secondary-market transaction.
According to regulators, this incentive led to over 10,000 secondary transactions, surpassing $20 million in total value. Notably, at least 20% of these NFTs were resold before the first episode of the web series had even aired.
This enforcement action against SC2 is not the first instance of regulators targeting NFT makers over alleged securities offerings. Last month, the SEC initiated an enforcement action against NFT maker Impact Theory.
