SEC reopens the NFT debate: What sets apart Stoner Cats with Vitalik's voice from Star Wars collectibles?

Following Impact Theory being fined $6 million by the SEC two weeks ago for issuing NFT assets without registration, the SEC has once again charged an animated show production company fully funded by NFTs, Stoner Cats 2, and settled by paying $1 million and destroying all owned NFTs.

Stoner Cats Gets Vitalik's Voiceover Blessing

Stoner Cats is an animated series combined with NFTs, revolving around five special house cats and their magical adventures with catnip, along with their owner. The NFTs associated with this series function similarly to fan tokens, allowing holders to access exclusive content and merchandise from the animation team. One of the most notable features is that Ethereum co-founder Vitalik Buterin provided the voiceover for a cat named Catsington in the series. The promotional efforts even included appearances at the home of American actor and investor Ashton Kutcher.

Vitalik quickly explains Ethereum: Ashton Kutcher's wife tries to explain what Ethereum is, and a heavyweight mysterious visitor appears in their kitchen.

SEC Alleges NFTs as Unregistered Securities

The U.S. Securities and Exchange Commission (SEC) has accused Stoner Cats 2 of selling NFTs that are unregistered crypto asset securities. Stoner Cats 2 raised around $8 million from investors through NFTs to fund its animation production.

According to the SEC press release, on July 27, 2021, Stoner Cats 2 sold over 10,000 NFTs at approximately $800 each to investors, selling out within 35 minutes. Prior to and after the public sale of Stoner Cats 2, specific benefits of owning the NFTs were emphasized, including the ability for owners to resell their NFTs on the secondary market. Investors were led to expect that the success of the web series could increase the resale value of Stoner Cats NFTs on the secondary market. A 2.5% royalty fee is charged for each NFT transaction on the secondary market, resulting in buyers spending over $20 million in at least 10,000 transactions.

Stoner Cats 2 Fined $1 Million and Ordered to Destroy All NFTs

Without admitting or denying the SEC investigation findings, Stoner Cats 2 agreed to pay a civil penalty of $1 million and established a fair fund to refund investors for the costs paid to purchase the NFTs. Stoner Cats 2 also agreed to destroy all NFTs it owns or controls and published a notice of the order on its website and social media here.

Commissioners Disagree, Comparing to Star Wars Collectibles

SEC Commissioners Hester Peirce and Mark Uyeda criticized the SEC's allegations, stating that the SEC should not take enforcement actions against NFT projects arbitrarily but should instead provide clear guidance for artists and creators interested in exploring NFTs to support their creative efforts and fan base building. They argued that Stoner Cats NFTs are not significantly different from Star Wars collectibles sold in the 1970s.

After the success of Star Wars in 1977, it attracted numerous fans. Kenner Toys sold "Early Bird Certificate Packages" that could be redeemed for future action figures of Luke Skywalker, Princess Leia, R2-D2, and membership in the Star Wars Fan Club. The sale of these certificates helped establish a loyal Star Wars fan community.

The two commissioners questioned:

If these resalable certificates constitute investment contracts, then the SEC should parachute in to rescue these kids from the Star Wars frenzy.