The United States Securities and Exchange Commission (SEC) has charged “Stoner Cats 2 LLC” (SC2) of conducting an offering of non-fungible tokens (NFTs) without proper registration. In order to resolve the charges, SC2 has consented to a cease-and-desist order and will pay a penalty of $1 million.
The SEC is going hammer and tongs against the cryptocurrency industry, not even sparing its sub-ecosystems including NFT and decentralized finance (DeFI). Despite facing several recent setbacks, the American regulatory watchdog has continued to assert its unbendable authority in the digital asset economy.
After waging a relentless war against crypto-focused companies and digital tokens, it seems the SEC has now turned its attention to the crypto sub-ecosystem including the burgeoning world of digital artworks and decentralized finance.
SEC Continues its Crackdown over the Crypto Industry
According to a September 13 official press release, the SEC charged SC2, backed by actress Mila Kunis and Orchard Farm Productions, her production company. for failing to register their NFTs as securities.
The SEC order noted that on July 27, 2021, SC2 sold more than 10,000 NFTs to investors at approximately $800 each, with the entire supply sold out in just 35 minutes and highlighted the potential benefits of owning NFTs, including allowing owners to resell them on the secondary market.
It claimed SC2 emphasized its Hollywood producer expertise, knowledge of crypto projects, and the involvement of famous actors in the web series, leading investors to hope to profit from a potential increase in resale value.
Furthermore, the American watchdog alleged that SC2 configured NFTs to provide a 2.5% royalty for every secondary market transaction, thereby incentivizing individuals to buy and sell NFTs. Subsequently, the buyers reportedly engaged in more than 10,000 transactions amounting to more than $20 million.
The Company must also destroy all SC2 NFTs
As a result, the regulatory agency accused Stoner Cats of violating the Securities Act of 1933 by offering and selling these SEC-denominated “crypto asset securities” to the public without registering the offering or qualifying for an exemption. Gurbir S., Director of the SEC’s Enforcement Division, said,
“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.”
In response to the allegations, SC2 agreed to a cease-and-desist order and a $1 million civil fine without admitting or denying the SEC’s findings. In addition, it has also committed to destroying all NFTs under its possession or control and publishing notice of the order on its website and social media channels.
It’s the SEC’s Way or the Highway
It is not just the SEC that has gone berserk over the decentralized industry, but other financial regulators such as the United States Commodity Futures Trading Commission (CFTC) have also actively targeted the industry.
Today @CFTC issued orders against operators of three DeFi protocols for offering illegal digital asset derivatives trading. Learn more: https://t.co/7YDbgC1Xl2
— CFTC (@CFTC) September 7, 2023
Recently, the CFTC issued regulatory action against three decentralized finance (DeFi) protocols – Opyn, ZeroEx and Deridex, for allegedly failing to register various derivatives trading offerings.
It seems, that regulatory bodies in the United States are trying to assert unchecked and unaccountable monetary policy tightening over the crypto world, which resembles the famous saying, “It’s our way or the highway.”
