SEC Files Charges Against Stoner Cats Over Alleged Unregistered $8 Million Securities Sale in NFT Crackdown

SEC Charges Stoner Cats 2 for Unregistered Offering of Crypto Asset Securities

The Securities and Exchange Commission (SEC) has launched another attack on the Non-Fungible Token (NFT) industry by charging Stoner Cats 2 (SC2) with conducting an unregistered offering of crypto asset securities[^1^]. This move comes as the SEC intensifies its crackdown on the NFT sector.

According to the SEC order, SC2 sold over 10,000 NFTs in just 35 minutes for approximately $800 each[^1^]. The sale raised around $8 million from investors, with the NFTs being used to finance the production of an animated web series[^1^]. SC2’s marketing campaign promoted the potential benefits of owning the NFTs, such as the ability to resell them on the secondary market[^2^]. Investors were led to believe that they could profit from the rise in resale value, as SC2 emphasized its Hollywood producer expertise, knowledge of crypto projects, and involvement of well-known actors in the web series[^2^].

Furthermore, SC2 configured the NFTs to provide a 2.5% royalty for each secondary market transaction, which incentivized individuals to buy and sell the NFTs[^2^]. This resulted in over 10,000 transactions, totaling more than $20 million[^2^]. However, the SEC alleges that SC2 violated the Securities Act of 1933 by offering and selling these crypto asset securities without registering the offering or qualifying for an exemption[^3^].

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, highlighted that the determination of whether an investment contract qualifies as a security depends on the economic reality of the offering, not the labels attached to it. In the case of SC2, the SEC’s order found that the company marketed its knowledge of crypto projects and implied that the price of their NFTs could increase, leading investors to believe they would profit from selling the NFTs on the secondary market[^4^].

In response to the charges, SC2 has agreed to a cease-and-desist order and will pay a civil penalty of $1 million. Additionally, SC2 will destroy all NFTs under its possession or control and will publish notice of the order on its website and social media channels[^5^].

The SEC’s actions are aimed at protecting investors by ensuring proper disclosures, but some critics argue that the SEC’s language and terminology regarding the NFT market are biased and lack clarity[^6^]. They believe that the SEC’s communications should accurately reflect the law to avoid fear-mongering and a chilling effect on the industry[^6^].

This lawsuit against Stoner Cats highlights the ongoing regulatory battle surrounding the NFT sector. As the industry continues to evolve, stakeholders are calling for clearer guidelines and unbiased regulatory practices to balance investor protection and foster innovation in the digital asset space[^7^].

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J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

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