SEC Charges Stoner Cats With Alleged Unregistered $8 Million Securities Sale In NFT Crackdown
September 13 2023 - 4:00PM
NEWSBTC
In a recent move that intensifies the Securities and Exchange
Commission’s (SEC) crackdown on the Non-Fungible Token (NFT)
sector, the SEC has charged Stoner Cats 2 (SC2) with conducting an
“unregistered offering of crypto asset securities.” The
charges specifically target Stoner Cats’ sale of non-fungible
tokens, which raised approximately $8 million from investors to
finance the production of an animated web series. Related Reading:
TON Jumps By Nearly 8% Following Wallet Integration On Telegram
SEC’s Legal Earthquake Hits NFT Market Once Again The SEC
order reveals that on July 27, 2021, SC2 sold over 10,000 NFTs to
investors at approximately $800 each, with the entire supply being
sold out within a mere 35 minutes. The SEC alleges that SC2’s
marketing campaign highlighted the potential benefits of owning the
NFTs, including allowing owners to resell them on the secondary
market. Furthermore, the SEC claims that SC2 emphasized its
Hollywood producer expertise, knowledge of crypto projects, and
involvement of well-known actors in the web series, which led
investors to anticipate profits from the potential rise in resale
value. According to the SEC, SC2 configured the NFTs to provide a
2.5% royalty for each secondary market transaction, incentivizing
individuals to buy and sell the NFTs. Subsequently, purchasers
allegedly engaged in over 10,000 transactions, amounting to more
than $20 million. The SEC alleges that SC2 violated the
Securities Act of 1933 by offering and selling these
SEC-denominated “crypto asset securities” to the public without
registering the offering or qualifying for an exemption. Gurbir S.
Grewal, Director of the SEC’s Division of Enforcement, emphasizes
that the determination of whether an investment contract qualifies
as security lies in the economic reality of the offering, rather
than the labels attached to it. Grewal stated: Here, the
SEC’s order finds that Stoner Cats marketed its knowledge of crypto
projects, touted that the price of their NFTs could increase, and
took other steps that led investors to believe they would profit
from selling the NFTs in the secondary market. Stoner Cats Settles
Charges, Agrees To NFTs Destruction While the SEC’s actions are
intended to “protect investors” by ensuring proper disclosures,
some critics argue that the SEC’s language and terminology
surrounding the NFT market are biased and lack clarity.
Crypto enthusiast and investor Adam Cochran expressed his concerns,
highlighting that there is no such thing as an “unregistered
offering of NFTs” since registration requirements typically apply
to securities. Cochran believes that the SEC’s communications
should accurately reflect the law to avoid a chilling effect
through fear-mongering. In response to the charges, SC2 has agreed
to a cease-and-desist order and to pay a civil penalty of $1
million. The order also establishes a Fair Fund to return funds to
injured investors who purchased the NFTs. Additionally, SC2
has committed to destroying all NFTs under its possession or
control and publishing notice of the order on its website and
social media channels. Related Reading: Can Ethereum Tally Spring
Highs After Correction? Top Analyst Shares His Views The SEC’s
lawsuit against Stoner Cats underscores the ongoing regulatory
battle surrounding the NFT sector. As the industry evolves,
stakeholders are calling for clearer guidelines and unbiased
regulatory practices to strike a balance between investor
protection and fostering innovation in the digital asset space.
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