SEC charges ‘Stoner Cats’ NFT creators for selling unregistered securities

The Securities and Exchange Commission (SEC) now claims actress Mila Kunis’ “Stoner Cats” raised $8 million from selling unregistered securities in more than one US state.

In a press release on Sep. 13, the SEC said Stoner Cats 2 LLC (SC2) sold 10,000 non-fungible tokens (NFTs) in 35 minutes and raised over $8 million in the process.

The project failed to register these offerings which qualify as investment contracts, the SEC said citing the Howey test.

The regulator further explained that “Stoner Cats” led investors to expect returns from secondary sales, suggesting that a successful animated series could increase the value of the NFTs.

This points to how “Stoner Cats” was marketed.

“Stoner Cats” creators agreed to a cease-and-desist order without admitting or denying fault.

The PFP project will also pay $1 million in civil penalties within 14 days. 

Launched in July 2021, “Stoner Cats” debuted as an NFT project featuring a web series animated by Mila Kunis’ studio Orchard Farm Productions.

Kunis voiced a character in the cartoon show alongside husband Ashton Kutcher and Ethereum co-founder Vitalik Buterin.

In terms of marketing and sales approach, both of which were significant aspects in the SEC’s charges, “Stoner Cats” initiated its launch in a manner resembling Initial coin offerings (ICOs) from 2017.

It’s worth noting that several other NFT projects adopted a similar approach. They sold NFTs while committing to fund their development roadmaps through these fundraisers.

The recent settlement involving “Stoner Cats” could potentially foreshadow legal actions against other NFT projects.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, also hinted at the possibility of forthcoming lawsuits targeting similar projects.

Regardless of whether your offering involves beavers, chinchillas, or animal-based NFTs, under the federal securities laws, it’s the economic reality of the offering – not the labels you put on it or the underlying objects – that guides the determination of what’s an investment contract and therefore a security. 

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement

In August 2023, the SEC charged Impact Theory, LLC with offering illegal securities in the form of NFTs.

NFT proponents might argue that the two cases highlight uncertainty regarding how existing securities laws apply to blockchain-based digital collectibles.