Non-fungible tokens tied to the Stoner Cats web series starring Mila Kunis and Ashton Kutcher were illegally offered, according to a Securities and Exchange Commission (SEC) order on Wednesday that said the royalty-generating NFTs used to finance the series were unregistered securities.
The order alleges that the company behind the animated show, Stoner Cats 2 (SC2), reaped at least $8 million in sales from 100,000 Stoner Cat NFTs representing characters from its eponymous animated web show concept in July 2021. The company's public promotions of the digital art collectibles before and after the collection's initial sale "tied the success of the show to the value of the NFTs," fueling investors' expectations to profit off them, the SEC's filing shows.
"SC2 engaged in an extensive media campaign to promote the Stoner Cats NFTs both before and after the offering when the NFTs traded in the secondary market, the SEC said in the order. "[It] engaged in this conduct without registering the offering of the Stoner Cats NFTs."
The company, which didn't admit or deny wrongdoing in the settlement, agreed to pay a $1 million fine and destroy all remaining NFTs in its possession, according to the order. It has also agreed to establish a fund to reimburse individuals who invested in the tokens.
Stoner Cats is an animated web show about anthropomorphic cats who become "sentient" through their exposure to cannabis smoke, according to the series' website. Six episodes debuted between July 2021 and December 2022. The show features the voice talents of several Hollywood actors, including Kunis, Seth McFarland, Chris Rock, Jane Fonda, Dax Shepard and Kutcher, in addition to Ethereum founder Vitalik Buterin as Lord Catsington.
The company "paid the actors and artists (as well as the producers and managerial and technical professionals on the project) all of the offering proceeds and all of the royalties it generated from secondary market sales in the Stoner Cats NFTs," the order said.
Kunis's production company, Orchard Farm Productions, backed the series, according to the show's website. An Orchard Farm executive didn't immediately respond to a request for comment.
According to the SEC, Stoner Cats NFT holders were incentivized to trade the NFTs, receiving a 2.5% royalty for each secondary-market transaction involving the collectibles. That encouraged individuals to buy and sell the NFTs in at least 10,000 secondary transactions worth more than $20 million, according to regulators. In addition, at least 20% were resold before the first episode of the Stoner Cats web series had even aired, the order shows.
This isn't the first time regulators have zeroed in on alleged securities offerings from NFT makers. Last month, the SEC brought an enforcement action against NFT maker Impact Theory.
UPDATE (September 13, 2023, 16:14 UTC): Adds details of the SEC order.
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