Stoner Cats NFT Offering Considered as Unregistered Securities Offering by SEC, Company Resolves by Paying $1 Million Penalty

Stoner Cats 2 LLC, the popular non-fungible token (NFT) issuer, has found itself in hot water with the Securities and Exchange Commission (SEC) for conducting an unregistered securities offering. This enforcement action marks the second time the SEC has targeted an NFT issuer, signaling its expanding focus on the digital asset industry.

According to the SEC, Stoner Cats sold more than 10,000 NFTs for $800 each in July 2021. The offering was a massive success, with all the NFTs selling out in just 35 minutes. The SEC alleges that these NFTs were actually securities, as they were marketed to investors with the promise of potential gains in secondary markets.

Stoner Cats managed to gain the support of several high-profile influencers and actors, including Mila Kunis. The SEC complaint stated:

“The NFTs were promoted on and various social media platforms, including podcasts, YouTube, Twitter, Instagram, and Discord, as well as during interviews on major network and cable television shows.”

Stoner Cats produced six episodes of content exclusively for NFT holders. The company’s website stated that the content would remain permanently accessible on the blockchain through decentralized hosting and archiving service Arweave. Stoner Cats emphasized that it had no control over the content and that it could never be removed.

According to the SEC, more than 10,000 transactions took place in secondary markets, generating $20 million in transaction value. Stoner Cats received a 2.5% royalty from each transaction.

Gurbir S. Grewal, the SEC Director of Enforcement, highlighted that what matters is the economic realities of the NFT offering, regardless of whether it involves beavers or chinchillas. He stated:

“Here, the SEC’s order finds that Stoner Cats marketed its knowledge of crypto projects, promoted the potential increase in the price of their NFTs, and took other actions that led investors to believe they would profit from selling the NFTs in secondary markets. It is therefore not surprising that Stoner Cats sold its entire NFT supply in just 35 minutes, generating over $8 million in proceeds, most of which were quickly resold rather than held as collectibles in the secondary market.”

Carolyn Welshhans, the Associate Director of the SEC’s Home Office, emphasized that the registration of securities and the required disclosures are essential for investor protection. She stated:

“Stoner Cats wanted to reap all the benefits of offering and selling a security to the public but disregarded the legal responsibilities that come with such actions.”

Without admitting or denying guilt, Stoner Cats has agreed to pay a $1 million penalty and cease its activities. The fate of the decentralized content’s availability remains unclear.

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