US SEC Charges Stoner Cats 2 LLC for Illegal Offering of Crypto Asset Securities
Yesterday, the US Securities and Exchange Commission (SEC) filed charges against Stoner Cats 2 LLC for conducting an unregistered offering of crypto asset securities. The offering, which involved non-fungible tokens (NFTs), raised approximately $8 million to fund an animated web series called “Stoner Cats.” This recent action by the SEC has received criticism from Stuart Alderoty, Chief Legal Officer at Ripple.
Ripple’s Chief Legal Officer Criticizes SEC’s Actions
Alderoty has denounced the SEC’s move, referring to it as a “PR stunt” possibly intended to showcase a quick and easy success following recent substantial defeats. In a tweet, he expressed his skepticism, saying, “I don’t know all the facts here, but I do know that a settlement to avoid a crushing SEC process without ‘admitting or denying’ anything is binding on no one. A cynic would call it a PR stunt. What matters is that when seriously challenged in court the SEC continues to lose.”
Alderoty’s comments are in reference to the SEC’s recent legal setbacks in the cryptocurrency industry. Ripple itself achieved a partial victory against the SEC, and the agency also lost a case to Grayscale, which plans to convert its Bitcoin Trust (GBTC) into a Bitcoin Spot ETF. These victories by Ripple and Grayscale undermine the SEC’s regulatory policy as judges dismantled the regulator’s arguments.
Additionally, Alderoty highlights Ripple’s determination to continue its legal battle. In a recent interview with CNBC, Ripple President Monica Long stated, “We are planning to continue to fight the case all the way through.” Ripple executives have also made it clear that they are willing to take the case to the Supreme Court if necessary.
Ripple CEO Brad Garlinghouse believes that the company’s chances of success increase as the case progresses through the judicial system. He cites a more conservative viewpoint at higher levels, which may be favorable to Ripple.
Dissent Within the SEC
The SEC’s decision to charge Stoner Cats 2 LLC has sparked disagreement within the agency. Commissioners Hester M. Peirce and Mark T. Uyeda have voiced their dissent, highlighting the problematic application of the Howey investment contract analysis to this case. They argue that it lacks a meaningful limiting principle and could stifle creativity across various sectors.
To illustrate this point, the commissioners draw parallels between the Stoner Cats NFTs and Star Wars collectibles from the 1970s. They raise the question of whether the Star Wars collectibles, which were essentially IOU certificates for future action figures, would be considered investment contracts under the SEC’s current analysis.
The statement from these commissioners emphasizes the potential consequences of the SEC’s actions. They warn that by applying securities laws to NFTs in the same way as physical collectibles, legal ambiguities may suppress artists’ creativity. They advocate for clearer guidelines to support artists and creators who want to explore NFTs as a means of engaging with their fan communities and supporting their work.
Furthermore, the commissioners emphasize that purchasers of Stoner Cats NFTs received exactly what they paid for: a unique image of a character, access to the animated series, and the excitement of participating in a popular phenomenon. They believe that the SEC’s current approach could discourage content creators from utilizing social networks for content creation and distribution, worsening the legal challenges faced by artists, writers, musicians, filmmakers, and other creators.
This latest action by the SEC against Stoner Cats 2 LLC and the dissenting statement from within the agency highlight the ongoing regulatory uncertainty in the cryptocurrency industry. As Alderoty pointed out, the SEC’s track record in court raises questions about the effectiveness of its regulatory approach. However, litigation appears to be the only way to hold the SEC accountable.
At the time of writing, XRP was trading at $0.4812.
Note: The featured image is for illustrative purposes only and the chart is sourced from TradingView.com.
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