The creators of Stoner Cats non-fungible tokens (NFTs) and the associated web series have been fined by the U.S. Securities and Exchange Commission (SEC) for selling unregistered securities in the form of NFTs. The SEC took issue with Stoner Cats 2, the company behind the project, for raising over $8 million worth of Ether through the sale of these unregistered securities.
Stoner Cats 2 has accepted the SEC’s cease-and-desist order and agreed to pay a civil penalty of $1 million.
The Stoner Cats NFT project involved the sale of 10,320 NFTs featuring cat-themed animated characters on July 21, 2021, with each NFT priced at $800. The funds raised were intended to finance an animated web series of the same name, featuring a star-studded cast including Mila Kunis, Ashton Kutcher, and Jane Fonda.
The SEC argued that the company’s marketing campaign led investors to expect profits from secondary market sales and interest, ultimately classifying Stoner Cats NFTs as financial securities.
Gurbir S. Grewal, SEC director of the enforcement division, emphasized that the determination of what constitutes an investment contract and thus a security under federal securities laws is based on the economic reality of the offering rather than the labels used or the underlying objects.
This isn’t the first time the SEC has charged an NFT company for offering unregistered securities. In August, the agency brought similar charges against California-based media and entertainment company Impact Theory, which also agreed to the SEC’s cease-and-desist order and penalty.
The SEC has been pursuing legal actions against multiple cryptocurrency firms, including Binance, Coinbase, and Ripple Labs, for allegedly offering unregistered securities in the form of cryptocurrencies. The enforcement action against Impact Theory marks the first instance of the U.S. regulator applying this approach to NFTs.
The NFT market is now facing increased scrutiny, and the Forkast 500 NFT Index, a proxy measure of global NFT market performance, has experienced a 1.63% drop in the last 24 hours, as of 1:30 p.m. in Hong Kong.
