The United States (US) Securities and Exchange Commission (SEC) issued an order on Wednesday, revealing that non-fungible tokens (NFTs) associated with the Stoner Cats web series, featuring renowned actors Mila Kunis and Ashton Kutcher, were unlawfully offered.

The SEC's order asserts that these NFTs, designed to generate royalties to fund the web series, were, in fact, unregistered securities.

The filling mentioned:

"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. [It] engaged in this conduct without registering the offering of the Stoner Cats NFTs."

At the centre of the SEC's allegations is Stoner Cats 2 (SC2), the entity responsible for the animated show.

In a notable transaction that unfolded in July 2021, SC2 reportedly generated over $8 million in sales from approximately 100,000 Stoner Cat NFTs, each representing characters from the animated web series bearing the same name.

What sets this case apart is the SEC's contention that SC2's public marketing efforts, both before and after the initial NFT sale, inextricably linked the success of the series to the value of these digital art collectibles.

This linkage undeniably fueled investors' expectations of profiting from their NFT investments, as emphasised in the SEC's legal filing.

In light of these allegations, it is worth noting that SC2, while not admitting any wrongdoing in the settlement, has consented to a series of remedial measures.

These include a substantial $1 million fine, the irrevocable destruction of all remaining NFTs within its possession, and the establishment of a fund dedicated to reimbursing individuals who had invested in these tokens.

What Is Stoner Cats?

"Stoner Cats" is an animated web series with a distinctive premise, revolving around anthropomorphic cats that attain a form of "sentience" through their interaction with cannabis smoke, as detailed on the series' official website.

Spanning six episodes, the show made its debut between July 2021 and December 2022, boasting a star-studded cast of Hollywood luminaries, including Mila Kunis, Seth McFarland, Chris Rock, Jane Fonda, Dax Shepard, and Ashton Kutcher.

Notably, Ethereum founder Vitalik Buterin lent his voice to the character Lord Catsington, adding a unique dimension to the production.

Remarkably, the company responsible for the series, as per the SEC's order, diligently compensated its actors, artists, producers, as well as the managerial and technical professionals associated with the project.

Furthermore, the company shared the entirety of the offering proceeds and royalties derived from secondary market sales of the Stoner Cats NFTs with these contributors.

It is worth noting that Kunis's production company, Orchard Farm Productions, played a pivotal role in supporting the series, as attested by the show's official website, although Orchard Farm's executives were not immediately available for comment.

The SEC's investigation highlights an intriguing facet of the Stoner Cats NFT ecosystem — the incentives provided to NFT holders.

These participants were incentivised to engage in NFT trading, entailing a 2.5% royalty for each secondary-market transaction involving these unique collectibles.

The result was a vibrant secondary market that witnessed over 10,000 transactions, amassing a substantial value exceeding $20 million, as documented by regulatory authorities.

Intriguingly, at least 20% of these NFTs changed hands before the initial episode of the Stoner Cats web series even premiered, a noteworthy observation illuminated by the SEC's order.

This episode underscores a growing trend of regulatory scrutiny focused on potential securities offerings in the realm of NFTs.

The recent SEC enforcement action against NFT creator Impact Theory serves as a relevant precedent, reflecting the authorities' ongoing commitment to uphold regulatory standards in the world of digital collectibles.