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SEC Charges ‘Stoner Cats’ Creator Over NFTs, Imposes $1M Penalty: Mila Kunis-Backed Series Faces Regulatory Scrutiny

by Diya Bhatia
7 comments
Mila Kunis

In a significant development, the Securities and Exchange Commission (SEC) has taken action against the creator of the popular animated web series “Stoner Cats,” a project partially backed by Mila Kunis and featuring celebrity voices including Ashton Kutcher and Chris Rock. The SEC has accused the creator, Stoner Cats 2 LLC (SC2), of conducting an unregistered offering of crypto asset securities in the form of non-fungible tokens (NFTs). As a result, SC2 has agreed to a cease-and-desist order and will pay a substantial civil penalty of $1 million, as disclosed by the SEC.

Regulatory Clampdown on ‘Stoner Cats’ NFT Offering

The SEC’s move stems from SC2 raising approximately $8 million from investors through the sale of NFTs to fund the production of “Stoner Cats.” The commission asserted that the project sought to enjoy the benefits of offering and selling securities to the public while neglecting the legal responsibilities associated with such offerings. Carolyn Welshhans, the associate director of the SEC’s home office, emphasized the importance of adhering to federal securities laws, stating that it’s the economic substance of an offering that determines whether it qualifies as an investment contract and, consequently, a security.

Gurbir Grewal, director of the SEC’s Division of Enforcement, reiterated the significance of economic reality in determining security status, emphasizing that labels and underlying objects are secondary considerations.

Behind the ‘Stoner Cats’ Project

Stoner Cats” was created by Ash Brannon, Chris Cartagena, and Sarah Cole, with the story revolving around a woman using medical marijuana to alleviate early Alzheimer’s symptoms, aided by her devoted family of cats. Mila Kunis and Orchard Farm Productions recognized the narrative’s potential and assembled a talented team of voice actors, animators, and NFT experts, including CryptoKitties’ creators, to bring the project to life using NFTs. The series comprises six episodes, exclusively accessible to holders of the NFT digital collectibles.

The main cast boasts an impressive lineup, including Mila Kunis, Ashton Kutcher, Chris Rock, Jane Fonda, Michael Buble, and Seth McFarlane.

The SEC’s Allegations and Market Impact

The SEC’s investigation revealed that SC2 sold over 10,000 NFTs for approximately $800 each, achieving a sellout in just 35 minutes. The order alleges that SC2’s marketing campaign highlighted various benefits of NFT ownership, such as the ability to resell NFTs on the secondary market. Additionally, the campaign emphasized the team’s expertise as Hollywood producers, knowledge of crypto projects, and involvement of renowned actors, all of which led investors to expect profits, speculating that a successful web series would drive up the resale value of Stoner Cats NFTs in the secondary market.

Furthermore, SC2 configured the Stoner Cats NFTs to provide a 2.5 percent royalty for each secondary market transaction, actively encouraging individuals to buy and sell NFTs. This strategy resulted in purchasers conducting transactions totaling more than $20 million across at least 10,000 transactions.

The SEC’s action against ‘Stoner Cats’ serves as a reminder of the regulatory scrutiny surrounding NFTs and their compliance with securities laws. As the NFT space continues to evolve, participants must remain vigilant about legal obligations to avoid potential enforcement actions.

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