SEC charges Stoner Cats 2 LLC with unregistered NFT offering

Source: U.S. SEC official website Translation: Shan Oppa, Golden Finance

Washington, DC, September 13, 2023

The U.S. Securities and Exchange Commission today charged Stoner Cats 2 LLC (SC2) with conducting an unregistered crypto-asset securities offering** in the form of so-called non-fungible tokens (NFTs) that raised approximately $800 from investors. million to fund an animated web series called Stoner Cats. **

According to the SEC’s ruling, on July 27, 2021, SC2 sold more than 10,000 NFTs to investors at a price of approximately $800 each, and sold out within 35 minutes. The judgment found that SC2’s marketing campaigns, both before and after the Stoner Cats NFTs were sold to the public, emphasized specific benefits of owning those NFTs, including the option for owners to resell the NFTs on the secondary market. Additionally, as part of the marketing campaign, the SC2 team highlighted their expertise as Hollywood producers, their knowledge of crypto projects, and famous actors involved in the web series, leading investors to expect that a successful web series could lead to Stoner Cats NFTs Profit from rising resale value in the secondary market. Additionally, SC2 configured Stoner Cats NFTs to provide a 2.5% royalty on secondary market transactions of each NFT and encouraged individuals to buy and sell NFTs, resulting in buyers spending over $20 million in at least 10,000 transactions. According to the SEC’s ruling, SC2 violated the Securities Act of 1933 because it offered and sold to the public unregistered offerings of these crypto-asset securities that did not meet the registration exemption requirements.

“Whether your offering involves beavers, marmots or animal-based NFTs, under the federal securities laws, it is the economic realities of the offering that determine the investment contract (i.e., the security), not what you label,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. or underlying items." He also said: "Stoner Cats marketed its knowledge of crypto projects, boasted that the price of its NFTs could increase, and took other steps to make investors believe they would be sold on the secondary market. Profiting from NFTs. So it’s no surprise that, as the verdict states, Stoner Cats sold out all of its NFTs in just 35 minutes, raising over $8 million in revenue, much of it on the secondary The market is being resold within months rather than being viewed as collectibles.”

“Registration of securities, including crypto-asset securities, protects investors by providing disclosures so they can make informed investment decisions,” said Carolyn Welshhans, the SEC’s deputy chief of staff. “Stoner Cats want to reap all the benefits of offering and selling securities to the public.” , but ignored the attendant legal responsibilities.”

Without admitting or denying the SEC’s findings, SC2 agreed to comply with the cease and desist judgment and pay a $1 million civil penalty. The order establishes an equity fund to return funds used by victim investors to purchase NFTs. SC2 also agreed to destroy all NFTs in its possession or control and to post notice of the order on its website and social media channels.

The SEC’s investigation was conducted by the Office’s David Frisof, Brian Fitzsimons, Antony Richard Petrilla and Brian Quinn, with assistance from Carmen Taveras Alam, Donald Battle, James Carlson, Will Connolly, Patrick Costello, Howard Kaplan, Joshua Mallet and Yongping Zheng. The case was overseen by Ms. Welshans, along with Crypto Assets and Cyber Unit Director David Hirsch and Deputy Director Jorge Tenreiro.