The SEC Fines Stoner Cats NFTs Creator $1 Million and Orders Destruction of NFTs

The company behind Stoner Cats non-fungible tokens (NFTs) has been hit with a $1 million fine by the US Securities and Exchange Commission (SEC) and has been ordered to destroy all of its NFTs as part of a settlement.

The Unregistered Offering of NFTs

According to a press release issued on Wednesday, the SEC charged Stoner Cats 2 LLC (SC2) with conducting an unregistered offering of cryptoasset securities in the form of NFTs. This offering raised approximately $8 million from investors to finance the creation of an animated web series called ‘Stoner Cats’.

“The economic reality of the offering defines a security, not the labels you put on it.” – Gurbir S. Grewal

Stoner Cats NFTs were launched in 2021 in anticipation of the release of the web series, which features sentient cats created by actress Mila Kunis. The project also boasted the involvement of Ethereum co-founder Vitalik Buterin, as well as celebrities such as Jane Fonda, Seth McFarlane, Ashton Kutcher, and Chris Rock.

“Stoner Cats wanted the benefits of selling a security to the public, while ignoring the legal responsibilities that come with it.” – Carolyn Welshhans

The SEC’s announcement revealed that the company promoted the benefits of owning the NFTs, including the option to resell them on the secondary market. They also highlighted their expertise as Hollywood producers, the participation of celebrities, and their knowledge of crypto projects, leading investors to believe that there would be potential profits from the success of the web series, which would increase the resale value of the NFTs.

Consequences and Fair Fund

In response to the SEC charges, Stoner Cats 2 LLC agreed to pay the $1 million fine and destroy all of the NFTs. The settlement further established a “Fair Fund” that will be used to return the funds that investors used to purchase the NFTs.

The case serves as a reminder that the economic reality of an offering determines its classification as a security, regardless of how it is labelled. The SEC emphasizes that companies cannot ignore the legal responsibilities that come with selling securities to the public.

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