Stoner Cats NFT Controversy: SEC Charges Production Company with Unregistered Digital Asset Offering

Picture Source: BeInCrypto

The creators of “Stoner Cats,” a short animated series featuring Hollywood stars Mila Kunis and Ashton Kutcher, have found themselves in hot water as their foray into the world of non-fungible tokens (NFTs) faces backlash. The United States Securities and Exchange Commission (SEC) has filed charges against Stoner Cats 2 LLC (SC2), the company behind the show, for conducting an unregistered digital asset offering. This case sheds light on the regulatory complexities surrounding NFTs and the involvement of celebrities in the crypto space.

Mandatory Stoner Cats NFTs for Show Access

SC2 has been accused of selling NFTs tied to the “Stoner Cats” series without the necessary registration as securities. To settle these charges, SC2 has agreed to a cease-and-desist order and will pay a penalty of $1 million.

In July, SC2 sold over 10,000 NFTs, priced at approximately $800 each. These NFTs granted holders exclusive access to episodes of “Stoner Cats,” a series featuring five medicinally-altered feline characters and produced by Mila Kunis’ Orchard Farm Productions, with appearances by Jane Fonda.

The involvement of Mila Kunis and Ashton Kutcher generated immense interest, leading to the entire NFT batch selling out within a mere 35 minutes, amassing a staggering $8 million. However, the SEC contends that SC2 violated securities regulations by neglecting to register the NFTs as investment contracts.

The SEC’s assertion is based on the fact that SC2 heavily emphasized the Hollywood credentials of their team during promotional efforts. With A-list celebrities lending their voices to the project, investors were led to believe that the NFTs had the potential to appreciate in value, akin to stocks, contingent upon the show’s success.

Furthermore, the SEC noted that SC2 imposed a 2.5% royalty fee on secondary sales, which allowed them to amass over $20 million in transactions.

SC2’s defense that the NFTs were collectibles rather than profit-generating investments was countered by the SEC, which argued that the economic substance of an offering, not its designation, determines whether it qualifies as an investment contract security. SC2’s implication that investors could sell the NFTs for profit meant they fell under the category of securities.

SEC Targets High-Profile Crypto & NFT Projects

The SEC’s actions against SC2 appear to be a strategic move aimed at setting a precedent using high-profile projects. This tactic mirrors last year’s fine imposed on Kim Kardashian for her unlawful promotion of crypto securities.

The SEC’s intervention serves as a cautionary tale for NFT projects targeting US audiences. It underscores the importance of celebrities ensuring compliance with securities laws as cryptocurrency gains traction in Hollywood.

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The Stoner Cats NFT controversy has brought into focus the challenges and legal implications surrounding celebrity-backed NFT projects. While SC2’s case is ongoing, it highlights the need for transparency, regulatory compliance, and informed decision-making in the cryptocurrency space, particularly when celebrities are involved. As the crypto and NFT markets continue to evolve, adherence to securities laws remains a paramount consideration for all parties involved.

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