SEC Labels Stoner Cats NFTs as Unregistered Securities, Imposes Fines.

The Securities and Exchange Commission (SEC) has taken action against the creators of Stoner Cats, an animated web series featuring Hollywood stars Mila Kunis and Ashton Kutcher. According to an SEC order, the non-fungible tokens (NFTs) tied to the series were illegally offered as they were considered “unregistered securities.” The company behind the animated show, Stoner Cats 2 (SC2), has agreed to a settlement involving a $1 million fine and the destruction of all remaining NFTs.

The SEC Order

The SEC’s filing alleges that SC2 made at least $8 million from the sale of 100,000 Stoner Cat NFTs, which represented characters from the animated web series. The regulatory body claims that the company’s promotional activities “tied the success of the show to the value of the NFTs,” effectively fueling investor expectations for profits. The SEC further elaborated that the company did not register the offering of these NFTs, violating U.S. securities laws.

Consequences for SC2

SC2 has agreed to pay a $1 million fine as part of the settlement, while also committing to destroy any remaining Stoner Cats NFTs in its possession. Moreover, the company will set up a fund to reimburse investors who bought these tokens. SC2 neither admitted nor denied any wrongdoing as part of the settlement.

The Web Series and Its Prominent Backers

Stoner Cats is an animated series about cats that gain sentience through exposure to cannabis smoke. The show has featured the voice talents of several Hollywood figures, including Kunis, Seth McFarland, Chris Rock, Jane Fonda, and Dax Shepard, with Ethereum founder Vitalik Buterin making a guest appearance as Lord Catsington. Kunis’s production company, Orchard Farm Productions, backed the series.

Secondary Market Impact

The SEC’s order pointed out that the NFTs carried a 2.5% royalty for each secondary-market transaction, encouraging people to buy and sell the tokens. This led to over 10,000 secondary transactions worth more than $20 million. Moreover, at least 20% of these tokens were resold even before the first episode of the series aired.

Implications

The SEC’s action against Stoner Cats serves as a cautionary tale for others in the rapidly evolving NFT space. It highlights the regulatory complexities involved and how easily projects can run afoul of securities laws. Given the settlement, it also raises questions about how this could impact other similar NFT projects that offer royalties or other financial incentives to holders.

An executive from Orchard Farm Productions was unavailable for immediate comment on the SEC’s order.

This case underscores the need for greater regulatory clarity in the fast-growing world of NFTs, as well as the potential legal risks creators may face when offering tokens tied to creative projects.