The U.S. Securities and Exchange Commission has come after another project selling non-fungible tokens. Its latest verdict is mocked by crypto experts as being absurd for its subject and language used by law enforcers.
U.S. watchdog fines Stoner Cats' creator with $1 million penalty
Stoner Cats 2 LLC, a creator of NFTs based on the Stoner Cats cartoon series, is charged by the U.S. SEC with conducting an unregistered offering of crypto asset securities. The NFT developers refused to plead guilty but agreed to a cease-and-desist order. Now, they have to pay a civil penalty of $1 million, the SEC ordered today, Sept. 13, 2023.
In total, the organizers of the sale managed to release over 10,000 NFTs at $800 each. Amid the peak phase of the 2021 NFT frenzy, the sale was closed in about 35 minutes. Besides the penalty, the developers must launch a "Fair Fund" to compensate the participants of the sale and destroy all remaining NFTs.
In a recent press release, the representatives of U.S. SEC stressed that during the period of the NFT sale, the tokens demonstrated all the features of unregistered securities:
SC2's marketing campaign highlighted specific benefits of owning them, including the option for owners to resell their NFTs on the secondary market. In addition, the order finds that, as part of the marketing campaign, the SC2 team emphasized its expertise as Hollywood producers, its knowledge of crypto projects, and the well-known actors involved in the web series, leading investors to expect profits because a successful web series could cause the resale value of the Stoner Cats NFTs in the secondary market to rise.
Stoner Cats is an adult animated series developed by Mila Kunis's Orchard Farm Productions. The series also features the voices of Ethereum (ETH) creator Vitalik Buterin, celebrities Ashton Kutcher, Jane Fonda and Chris Rock.
Community slams SEC order, here's why
Many enthusiasts of the global cryptocurrency community are outraged by the order and, in particular, the language it uses. Top analyst Adam Cochran noticed an absurd mistake in the text of U.S. SEC press release:
These NFTs may have been unregistered securities, but there is NO such thing as 'an unregistered offering of NFTs.' There is no *registration* to sell NFTs that aren't securities.
Prominent blockchain lawyer Preston Byrne, partner of Brown Rudnick LLP, in the thesis A Short Note on the Absurd Stoner Cats Settlement criticized the very idea of punishing the creators of tokenized cartoon cards in such a merciless way:
Does the SEC really have nothing better to do – for example, rulemaking to bring our crypto regs into the 21st century, or pursuing obvious frauds – than picking on a bunch of web cartoonists selling trading cards of film cells portraying cats?
As covered by U.Today previously, on April 28, 2023, the U.S. SEC for the first time punished NFT issuers for offering illegal securities. Impact Theory collection sellers were forced to pay a $30 million penalty.