The U.S. Securities and Exchange Commission (SEC) has taken action against the creators of the popular animated web series, Stoner Cats.

What Are Stoner Cats?

Stoner Cats is a popular adult animated web series that has garnered significant attention in both the entertainment and crypto worlds. The concept of "Stoner Cats" involves house cats that gain sentience after being exposed to their owner's medical marijuana. This marijuana is used to alleviate the symptoms of early Alzheimer's disease.  The series released six episodes from July 2021 to December 2022, and boasts a cast of well-known actors, including Jane Fonda, Mila Kunis, Ashton Kutcher, Seth MacFarlane, and Chris Rock.

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The creators introduced a unique concept where the Non-Fungible Tokens (NFTs) provided holders with exclusive access to watch the series online. These NFTs were marketed as tickets, with the idea being that the more successful the show became, the more valuable the NFTs would be.

Over 10k NFTs Sold in 35 Minutes

On July 27, 2021, SC2 offered and successfully sold over 10,000 NFTs at approximately $800 each, raising a staggering $8 million from investors. This sale was completed in a record 35 minutes. The NFTs were marketed as a ticket to the Stoner Cats web series, with the promise that the success of the show would directly correlate with the success of the NFTs.

Charge and Settlement

The SEC has formally charged Stoner Cats 2 LLC (SC2) for conducting an unregistered offering of crypto asset securities in the guise of NFTs.  This move by the SEC was aimed at ensuring that the creators of Stoner Cats adhered to the federal securities laws.  Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized that regardless -of the nature of the offering, it's the economic reality that determines its classification as an investment contract and, consequently, a security. The SEC's primary concern was that Stoner Cats marketed its expertise in crypto projects and led investors to believe they would profit from selling the NFTs in the secondary market.

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Without admitting or denying the SEC’s findings, SC2 has agreed to a cease-and-desist order. They will also pay a civil penalty amounting to $1 million. As part of the settlement, SC2 has committed to destroying all NFTs in its possession and will publish a notice of the order on its official platforms.

The SECs Regulation by Enforcement Continues

This case underscores the SEC's increasing scrutiny of the rapidly evolving NFT space. The regulatory body aims to ensure that firms involved in the production or trading of digital assets adhere to the necessary securities laws. The Stoner Cats case serves as a reminder that while the world of NFTs offers immense potential, it is not exempt from regulatory oversight.