The U.S. Securities and Exchange Commission (SEC) has charged non fungible token (NFT) project Stoner Cats for unregistered offering of NFTs.
The agency alleges that a sale of 10,000 cat NFTs in July 2021, which raised $8 million, was used to finance an animated web series called Stoner Cats, which featured the voices of Ashton Kutcher, Jane Fonda, Mila Kunis and Ethereum co-founder Vitalik Buterin. Stoner Cats was created by Orchard Farm Productions, which is a production studio owned by Kunis.
“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,” said Gurbir Grewal, director of the SEC’s division of enforcement, in a press release.
Stoner Cats 2 LLC (SC2), the legal entity behind the NFT project, did not deny or admit any wrongdoing but agreed to a cease-and-desist order and pay a penalty of $1 million, according to the release.
More than 10,000 NFTs were listed for sale at a price of $800 and sold out within 35 minutes, per the filing. SC2 will also destroy all NFTs in its possession and control. It will also publish the order on its website and return money to investors via a fair fund.
“Stoner Cats wanted all the benefits of offering and selling a security to the public but ignored the legal responsibilities that come with doing so,” said Carolyn Welshhans, associate director of the SEC’s home office, in the release.
This is just one of the many cases brought by the SEC this year in relation to unregistered securities sales from crypto assets. Media company Impact Theory recently paid a $6 million penalty as a result of charges by the SEC related to unregistered NFT offerings.