Posted on 09/16/2023
The Securities and Exchange Commission charged Stoner Cats 2 LLC with the sale of an unregistered crypto, or NFT. This was used to promote the originator’s plan to run a webseries. In all, more than 10,000 NFTs sold for approximately US$ 800 each. The NFTs were popular and lasted just over a half hour before selling out. Purchasers believed the NFTs would rise in value.
The Stoner Cats originators promoted themselves as Hollywood producers, and experts on crypto according to the SEC. They also claimed to have popular actors working on the show. Due to a royalty worked into the token, US$ 20 million was spent in Stoner Cat transactions.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement has been active in the crackdown of crypto projects, and in this case said: “Regardless of whether your offering involves beavers, chinchillas or animal-based NFTs, under the federal securities laws, it’s the economic reality of the offering – not the labels you put on it or the underlying objects – that guides the determination of what’s an investment contract and therefore a security.”
The SEC said that “Without admitting or denying the SEC’s findings, [Stoner Cats] agreed to a cease-and-desist order and to pay a civil penalty of US$ 1 million. The order establishes a Fair Fund to return monies that injured investors paid to purchase the NFTs.”
The SEC’s investigation was conducted by David Frisof, Brian Fitzsimons, Antony Richard Petrilla, and Brian Quinn of the Home Office, with assistance from Carmen Taveras Alam, Donald Battle, James Carlson, Will Connolly, Patrick Costello, Howard Kaplan, Joshua Mallet, and Yongping Zheng. The case was supervised by Ms. Welshhans, as well as by Crypto Assets and Cyber Unit Chief David Hirsch and Deputy Chief Jorge Tenreiro.