The Securities and Exchange Commission (SEC) has dropped the hammer on Stoner Cats 2 LLC, accusing the company of conducting an unregistered offering of crypto asset securities.
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Second NFT prosecution by the SEC
After charging Impact Theory for its non-fungible tokens (NFT) offerings in late August, the SEC has now set their sights on another project.
Stoner Cats 2 LLC (SC2) is being accused of selling unregistered securities as non-fungible tokens (NFTs), which amassed nearly $8 million. The money gathered during the sale will fund an animated web series aptly named Stoner Cats.
Sale was conducted back in 2021
On July 27, 2021, SC2 quickly offloaded over 10,000 NFTs at about $800 a piece, selling their entire stock in a mere 35 minutes. Both before and after the massive sale, SC2 invested in an extensive marketing campaign. The company touted the perks of these NFTs and how users would have the ability to resell them on secondary markets.
But that’s not all. The SC2 team flaunted their Hollywood producer credentials, showcased their crypto knowledge, and bragged about the big-name actors associated with their web series. Such promises led investors to anticipate profits, as the Stoner Cats would become a hit series that would inevitably boost the resale value of their Stoner Cats NFTs.
An interesting twist to the NFTs was that SC2 would receive a 2.5% royalty from every secondary market transaction. SC2 encouraged trading, which led to over $20 million spent across at least 10,000 transactions.
SEC drops the hammer
In a biting comment, the Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, stated:
“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… that guides the determination of what’s an investment contract and therefore a security.”
Grewal pointed out how Stoner Cats played up their crypto knowledge and led investors to believe they’d profit from NFT resales. Highlighting the swift sale of the NFTs, he added:
“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.”
Carolyn Welshhans, Associate Director of the SEC’s Home Office, stressed the importance of security registration, stating it would protect investors and allow them to make more informed decisions.
Stoner Cats agrees to refund investors
Without admitting or denying any wrongdoing, SC2 has agreed to a cease-and-desist order along with shelling out a civil penalty of $1 million. As part of the order, a Fair Fund has been set up to reimburse the affected investors for their NFT purchases. Additionally, SC2 committed to annihilating all the NFTs they own or control and will publicly acknowledge the order on their platforms.