SEC Takes Action Against Stoner Cats, Fines Mila Kunis $1M for Violating Securities Laws
The United States Securities and Exchange Commission (SEC) has recently taken action against the production company responsible for the popular web series Stoner Cats, which features Hollywood stars Mila Kunis and Ashton Kutcher. The SEC alleges that the company’s offering of royalty-yielding non-fungible tokens (NFTs) tied to the series constitutes unregistered securities.
In an order issued on September 13, the SEC raised concerns about the legality of the NFTs associated with Stoner Cats. The order accuses the production company, SC2, of offering unregistered securities through NFTs linked to the web series. In July 2021, the company reportedly made over $8 million in sales by selling 100,000 Stoner Cat NFTs, which represented characters from the animated series.
According to the SEC’s filing, SC2 promoted these NFTs as investments and tied their value to the success of the show, creating high investor expectations. As part of the settlement, SC2 has agreed to pay a $1 million fine without admitting or denying any wrongdoing. The company will also destroy all remaining NFTs in its possession and establish a fund to reimburse individuals who invested in these tokens.
The process of destroying the NFTs, known as “burning,” involves transferring them to a digital wallet without a private key, rendering them forever inaccessible. Only the producers and executives of Stoner Cats have the ability to burn the NFTs. This means that the over 5,000 unique wallet holders who own Stoner Cats NFTs can rest assured that their tokens are not at risk of being burned.
The SEC has been increasing its scrutiny of cryptocurrency projects endorsed by celebrities. Last year, Kim Kardashian reached a $1.26 million settlement with the SEC for failing to adequately disclose her compensation for promoting a cryptocurrency asset security offered by EthereumMax.
Stoner Cats, the animated web show, was spearheaded by Mila Kunis through her production company Orchard Farm Productions. The series revolves around anthropomorphic cats who gain sentience through exposure to cannabis smoke. Alongside Kunis and Kutcher, the show featured Hollywood icons such as Seth MacFarlane, Chris Rock, Jane Fonda, Dax Shepard, and Ethereum founder Vitalik Buterin, who lent his voice to the show as Lord Catsington.
The SEC order emphasizes that all actors, artists, producers, and technical professionals involved in the project were paid from the proceeds and royalties generated by the Stoner Cats NFTs.
Stoner Cats NFT holders were incentivized to trade these digital collectibles, receiving a 2.5% royalty for each secondary-market transaction. This incentive led to over 10,000 secondary transactions with a total value exceeding $20 million, with at least 20% of the NFTs being resold before the first episode of the web series had even aired.
This enforcement action against SC2 is not the first time regulators have targeted NFT makers over alleged securities offerings. Last month, the SEC initiated an enforcement action against NFT maker Impact Theory.