The SEC charged a company called Stoner Cats 2 LLC — which produced an animated web series “Stoner Cats” funded by sales of NFTs that were priced at $800 each — with conducting an unregistered offering of crypto asset securities.
The NFT sale of the Stoner Cats in July 2021 raised approximately $8 million to finance “Stoner Cats.” The voice cast of the “Stoner Cats” series included Ashton Kutcher, Mila Kunis, Chris Rock, Dax Shepard, Gary Vaynerchuk, Jane Fonda, Michael Bublé, Seth MacFarlane and Vitalik Buterin.
According to the SEC, “Without admitting or denying the SEC’s findings, SC2 agreed to a cease-and-desist order and to pay a civil penalty of $1 million.” The order establishes a fund to return money that “injured investors paid to purchase the NFTs,” according to the agency. SC2 also agreed “to destroy all NFTs in its possession or control and publish notice of the order on its website and social media channels.”
PvNew has sent to a request for comment to the email contact listed for Stoner Cats but did not receive a reply as of press time.
On July 27, 2021, SC2 offered and sold more than 10,000 NFTs for approximately $800 each, selling out in 35 minutes, according to the SEC. The Stoner Cats website says six episodes of “Stoner Cats” were produced, accessible only to those holding the NFT digital collectibles. “Stoner Cats NFTs gave holders access to the content creators of the show, making it one of the first projects to use NFTs to create a community of holders who get to see behind the curtain as an animated series is made and interact directly with top-level Hollywood talent,” the project’s site says.
The SEC alleges that the marketing campaign behind the Stoner Cats NFTs “highlighted specific benefits of owning them, including the option for owners to resell their NFTs on the secondary market.” In addition, the agency’s order finds that, as part of the marketing campaign, the SC2 team “emphasized its expertise as Hollywood producers, its knowledge of crypto projects, and the well-known actors involved in the web series, leading investors to expect profits because a successful web series could cause the resale value of the Stoner Cats NFTs in the secondary market to rise.”
According to the SEC, SC2 configured the Stoner Cats NFTs to provide the company a 2.5% royalty for each secondary market transaction in the NFTs — leading purchasers to spend more than $20 million in at least 10,000 transactions. According to the SEC’s order, SC2 violated the Securities Act of 1933 by offering and selling these crypto asset securities to the public in an unregistered offering that was not exempt from registration.
“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,” Gurbir Grewal, director of the SEC’s enforcement division, said in announcing the action against SC2.
According to Grewal, the SEC’s order found that Stoner Cats marketed its knowledge of crypto projects, touted that the price of their NFTs could increase and took other steps that led investors to believe they would profit from selling the NFTs in the secondary market. “It’s therefore hardly surprising, as the order finds, that Stoner Cats sold its entire supply of NFTs in just 35 minutes, generating proceeds of over $8 million, most of which were then resold — not held as collectibles — in the secondary market within months.”
The Stoner Cats website said the show was developed by Ash Brannon, Chris Cartagena and Sarah Cole. based on Cole’s personal experience with her mother, “‘Stoner Cats’ is a story of a woman who uses medical marijuana to alleviate her early Alzheimer’s symptoms and her beautiful family of cats who will do literally anything to save her,” the site says.
Per the Stoner Cats site, “once Mila Kunis and her Orchard Farm Productions partners heard this story, they knew that a hilarious and intimate story like this needed to have deep direct engagement with its audience. So they formed a formidable collective of voice talent, animators, and creatives of all kinds to come together with technology and NFT experts (including the brilliant minds behind CryptoKitties) to bring this story to life using NFTs.”
