SEC Says ‘Stoner Cats’ Are Unregistered Securities in New NFT Enforcement Action

The U.S. Securities and Exchange Commission (SEC) has taken action against the Stoner Cats non-fungible token (NFT) collection, considering it an unregistered security. Stoner Cats, which garnered attention due to its association with actress Mila Kunis, raised $8 million to finance an animated web series of the same name. The SEC alleges that Stoner Cats conducted an unregistered offering of crypto asset securities.

The SEC's argument revolves around the marketing and promotion of the NFT collection. The advertising campaign emphasized the option for NFT owners to sell their tokens on the secondary market and highlighted support from well-known actors and Hollywood producers. These aspects led investors to expect profits, which is a key factor in determining whether something qualifies as a security under federal securities laws.

The Director of the SEC's Division of Enforcement, Gurbir S. Grewal, explained that the economic reality of an offering, not its labels or underlying objects, guides the determination of whether it's an investment contract and therefore a security. In this case, the SEC found that Stoner Cats marketed its knowledge of crypto projects, suggested that the NFT prices could increase, and took actions that led investors to believe they would profit from selling the NFTs in the secondary market.

As a result, Stoner Cats has agreed to pay a $1 million penalty for these charges. This enforcement action aligns with the SEC's recent approach to NFTs and token sales, particularly when they are marketed with promises of future gains, which can categorize them as securities offerings subject to regulation.

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