Mila Kunis, Stoner Cats creator, will pay a heavy fine after they were sued by the United States Securities and Exchange Commission for offering unregistered NFTs in 2021 after the launch of the crypto assets. 

According to reports, the series was only accessible to the NFT holders and was built on a cast comprising Gary Vaynerchuk and Vitalik Buterin.In response to the suit, Stoner Cats LLC(SC2) has agreed to cease and desist order and any other relevant measure imposed by the SEC, such as publishing a notice of the order on its official social media platforms and website.

Mila Kunis’ Stoner Cats LLC unregulated sale 

The Mila Kunis Stoner Cats Project creators will also have to refund the investors by establishing a fair fund. Moreover, the company also agreed to pay $ 1 million without admitting guilt and destroy any tokens still in its possession. The collection was created by Orchard Productions, the actress Mila Kunis production studio, and was also part of the cast voicing the cartoon characters on the NFT series.

The company is said to have traded over 10,000 tokens for $800 each in July 2021, raising $8 million from ticket purchases to the show’s entrance. The earnings were used to fund the NFT series. 

Those who purchased the NFTs could access the series, which comprised five cats and an old woman as they smoked marijuana based on one of the website creators’ personal stories, Sarah Cole’s mother, who used cannabis to control her Alzheimer’s symptoms and her cats, who were also her family. 

The show’s first six episodes premiered after the sale, and voices such as Chris Rock, Ashton Kutcher, Jane Fonda, and McFarlene were featured in the show alongside the Ethereum founder Buterin. 

However, the SEC announcement did not mention the celebrities. The commission added that their brands were used in the marketing campaign. The company also became the first project to give their holders direct access to those behind the curtain as the cartoon series was made.

The collection sold out in less than 40 minutes in the primary sale. The company had highlighted the perks of owning the tokens, including the fact that they could easily be resold in secondary markets, earning the LLC royalties of 2.5% of every sale, and that the featured actors would also boost the tokens’ value. The secondary sale garnered over $20 million, with over 10,000 sales per the SEC’s report.

The SEC’s arguments against issuers

According to Grewal, the commission’s director in enforcement, it does not matter what object you offer to the public, provided that there is an investment contract underlying the labels or objects, thus amounting to a security that falls under the ambit of regulation by the security. 

According to Mike Seling, the fact that the creators marketed and sold the tokens was a key variable in the suit’s determination. He compared the sale to the 2017 vintage ICOs since the company sold the tokens to fund a project, the Stoner Cats, and it was also advertised that they would increase in value. 

The commission alleged this motivated the primary buyers to drive the secondary trading. Sellin added that although the company framed the tokens as consumptive goods, the advertisement mistakes indicated the same as securities. 

According to the SEC, the SC2 violated the Securities Act 1933 by offering the crypto assets in an unregistered public offering, which was not excluded from registration as per the provisions of this act.

This decision will now see most NFT projects shy away from royalties as they try to avoid similar occurrences in their companies by making similar marketing mistakes. This order may now imply that NFTs themselves are crypto asset securities, but when sold, they are sold as investment contracts; thus, remedies and refunds can be afforded to the investors.

The commission first instituted proceedings against Impact theory for unregistered securities in August. The company led by Tom Bilyeu had to pay a hefty fine of $ 6 million for its NFT collection, the Founder’s Key collection. The company also had to destroy any tokens in their possession as part of the settlement.