The Securities and Exchange Commission (SEC) has levied charges against Stoner Cats 2 LLC, the company behind the animated web series “Stoner Cats,” for conducting an unregistered offering of crypto asset securities. The series, notable for its star-studded Cast Of Stoner Cats, was funded through the sale of Non-Fungible Tokens (NFTs), each priced at $800.
In July 2021, the NFT sale successfully generated approximately $8 million, intended to finance the production of “Stoner Cats.” What drew significant attention to the project was its impressive cast of Stoner Cats, featuring Hollywood heavyweights and tech luminaries. The voice talent included Ashton Kutcher, Mila Kunis, Chris Rock, Dax Shepard, Gary Vaynerchuk, Jane Fonda, Michael Bublé, Seth MacFarlane, and even Vitalik Buterin, co-founder of Ethereum.
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According to the SEC, Stoner Cats 2 LLC (SC2) has agreed to a cease-and-desist order and will pay a substantial $1 million civil penalty, without admitting or denying the SEC’s findings. Crucially, a fund will be established to reimburse investors who purchased the NFTs. Furthermore, SC2 is obligated to destroy all NFTs under its control and publicize the SEC order on their website and social media platforms.
Variety reached out to Stoner Cats for comment but had not received a response by press time.
The SEC’s order details that on July 27, 2021, SC2 sold over 10,000 NFTs at around $800 apiece, achieving a complete sell-out within a mere 35 minutes. The “Stoner Cats” website stated that six episodes were produced, exclusively accessible to NFT holders. The project positioned itself as pioneering, using NFTs to cultivate a community with behind-the-scenes access to the animated series production and direct interaction with prominent Hollywood figures, namely the cast of Stoner Cats.
However, the SEC argues that the marketing campaign for Stoner Cats NFTs emphasized benefits such as secondary market resale. The agency’s order also points out that SC2’s team, in their marketing efforts, highlighted their experience as Hollywood producers, their understanding of crypto projects, and the involvement of the celebrity cast of Stoner Cats. This, the SEC contends, led investors to anticipate profits based on the potential for the web series’ success to inflate the resale value of the NFTs.
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Adding to the SEC’s concerns, Stoner Cats NFTs were designed to grant SC2 a 2.5% royalty on each secondary market transaction. This incentivized purchasers to engage in secondary trading, resulting in over $20 million spent across at least 10,000 transactions. The SEC concluded that SC2 violated the Securities Act of 1933 by offering and selling these crypto asset securities in an unregistered offering, lacking the necessary registration exemptions.
Gurbir Grewal, director of the SEC’s enforcement division, stated that the case underscores that regardless of the subject matter of NFTs, the economic substance of the offering determines whether it constitutes an investment contract and thus a security under federal securities laws. He used an analogy, “Regardless of whether your offering involves beavers, chinchillas or animal-based NFTs,” to emphasize this point.
According to Grewal, the SEC’s investigation found that Stoner Cats promoted the potential for increased NFT prices and suggested investors could profit from secondary market sales. “It’s therefore hardly surprising, as the order finds, that Stoner Cats sold its entire supply of NFTs in just 35 minutes, generating proceeds of over $8 million, most of which were then resold — not held as collectibles — in the secondary market within months.”
The “Stoner Cats” website credited Ash Brannon, Chris Cartagena, and Sarah Cole as the show’s developers. The concept, inspired by Cole’s mother’s experience with medical marijuana for Alzheimer’s symptoms, revolves around a woman using medical marijuana and her family of cats who are devoted to helping her.
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The website further elaborated that Mila Kunis and her Orchard Farm Productions partners recognized the story’s potential for audience engagement. They assembled a collective of voice talent, animators, and creatives, including NFT experts from CryptoKitties, to bring “Stoner Cats” to life using NFTs, leveraging the appeal of the cast of Stoner Cats to draw in audience participation.
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