The United States Securities and Exchange Commission (SEC) continues to crack down on Web3 companies. The target this time was Stoner Cats 2 LLC (SC2), a company that raised US$8 million from investors via NFT to finance an animated web series called Stoner Cats.
The show features the voices of several Hollywood actors, including Mila Kunis, Seth McFarland, Chris Rock, Jane Fonda, Dax Shepard and Ashton Kutcher, as well as Ethereum founder Vitalik Buterin.
According to an SEC statement published this Wednesday (13), SC2 conducted an unregistered offering of digital asset securities through non-fungible tokens (NFTs) in July 2021.
At the time, SC2 offered and sold more than 10,000 NFTs to investors for around US$800 each, selling out in 35 minutes.
The regulator’s order concludes that before and after Stoner Cats NFTs were sold to the public, SC2’s marketing campaign highlighted specific benefits of owning them, including the option for owners to resell their NFTs on the secondary market.
Stoner Cats na mira da SEC
Furthermore, the SEC concludes that as part of the marketing campaign, the SC2 team emphasized their experience as Hollywood producers, their knowledge of cryptocurrency projects, and the well-known actors involved in the web series. This would have led investors to expect profits. After all, the success of the series could trigger an increase in the price of NFTs.
The regulator also noted that SC2 configured Stoner Cats NFTs to provide 2.5% royalties for each secondary market transaction in the NFTs. The tokens moved US$20 million in at least 10,000 transactions.
Based on this, the regulator concluded that SC2 violated the Securities Act of 1933 by offering and selling these crypto-asset securities to the public in an unregistered offering that was not exempt from registration.
“Regardless of whether your offering involves beavers, chinchillas, or animal-based NFTs, under federal securities laws, it is the economic reality of the offering – not the labels you place on it or the underlying objects – that guides the determination of what is a contract investment and, therefore, a security,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
As per the statement, without admitting or denying the SEC’s findings, SC2 agreed to a cease and desist order. Additionally, the company agreed to pay a $1 million civil penalty.
The order establishes a Fair Fund to return the money investors paid to purchase the NFTs. Additionally, SC2 also agreed to destroy all NFTs in its possession and post an alert on its website and social media channels.
In August, the SEC accused another NFT project, Impact Theory, of selling NFTs to finance its operations. According to the regulator, the media company also promised to provide “tremendous value” to buyers of the digital assets.