Stoner Cats Web Series NFT Identifies as a Security
The Securities and Exchange Commission (SEC) has taken enforcement action against Stoner Cats 2 (SC2) for selling NFTs (Non-Fungible Tokens) in an unregistered offering that was not exempt from registration. The SEC found that SC2 sold over 10,000 NFTs for approximately $800 each in just 35 minutes, generating over $8 million in proceeds. Here are some key points from the SEC's findings:
Marketing Campaign: Before and after selling the NFTs, SC2's marketing campaign promoted the benefits of owning Stoner Cats NFTs. These benefits included the option for owners to resell their NFTs on the secondary market. SC2 emphasized its expertise as Hollywood producers, knowledge of crypto projects, and the involvement of well-known actors in the web series. This marketing led investors to expect profits, as a successful web series could increase the resale value of the NFTs.
Royalties: SC2 configured the Stoner Cats NFTs to provide a 2.5 percent royalty to SC2 for each secondary market transaction involving the NFTs. This incentivized individuals to buy and sell the NFTs, resulting in over $20 million spent in at least 10,000 transactions.
Unregistered Offering: The SEC found that SC2 violated the Securities Act of 1933 by offering and selling these NFTs as crypto asset securities to the public without proper registration or exemption.
Economic Reality: The SEC's Director of Enforcement emphasized that the determination of whether an offering is a security is based on the economic reality of the offering, rather than the labels used or the underlying objects. In this case, the marketing and economic factors led to the NFTs being considered securities.
Enforcement Action: Without admitting or denying the SEC's findings, SC2 agreed to a cease-and-desist order. They also agreed to pay a civil penalty of $1 million and establish a Fair Fund to return money to injured investors who purchased the NFTs. Additionally, SC2 agreed to destroy all NFTs in their possession or control and publish notice of the order on their website and social media channels.