The SEC Is Going After Mila Kunis’ NFT Project
It hasn’t been a good week for the Kunis-Kutchers.
Up In Smoke
Mila Kunis is once again in the news, though this time, it has nothing to do with her newly-sentenced “That ’70s Show” costar Danny Masterson.
In a filing, the Securities and Exchange Commission claimed that “Stoner Cats,” a non-fungible token (NFT) collection that funded a TV show by the same name that Kunis’ company produced, misled investors and offered unregistered securities.
As Coindesk noted, the animated TV show associated with the NFTs, which was also named “Stoner Cats,” was produced by Kunis’ company Orchard Farm Productions and centered on animated cats that became sentient when exposed to weed smoke.
The scheme behind the project was peculiar and involved its crew and voice actors — which included Kunis’ husband Ashton Kutcher alongside such big names as Chris Rock, Jane Fonda, Seth McFarlane, Dax Shepard, and even Ethereum founder Vitalik Buterin, who voiced a character named Lord Catsington — being paid from primary sales of the project’s NFTs.
Beyond the initial sale, Stoner Cats holders were also encouraged to resell their NFTs on secondary markets by being offered 2.5 percent royalties — an incentive that resulted in more than 10,000 resale transactions and which pulled in a whopping $20 million in crypto, the SEC said.
As the SEC alleges, Stoner Cats 2 LLC — the company created to sell the NFTs — led the people who bought the digital collectibles to think they’d turn a profit by emphasizing “its expertise as Hollywood producers, its knowledge of crypto projects, and the well-known actors involved in the web series.”
“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,” Gurbir Grewal, the director of the SEC’s enforcement division, said in the agency’s statement.
The crux of the SEC’s argument against Stoner Cats was that the NFTs were resold to turn a profit rather than being kept as collectibles, which most NFTs purport to be. This made the NFTs into securities without being registered as such, the argument goes, the way stocks and bonds are. It’s not a new accusation, and the financial regulator brought down its first unregistered securities ruling against another NFT project last month — though that one, to be fair, didn’t have the same cachet as “Stoner Cats.”
Though it did not admit responsibility, Stoner Cats 2 paid a $1 million fine, agreed to destroy all of the Stoner Cats NFTs it still held, and set up a recovery fund for investors who bought its digital wares — which we must say seems like a lot more compensation than most NFT projects provide for the people pulled into their schemes.
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