Blogs from September, 2023



The SEC, Stoner Cats, and the Dissenting Voices: A Deeper Look into NFT Regulation

By R Tamara de Silva

On September 13, 2023, the Securities and Exchange Commission (SEC) charged Stoner Cats 2 LLC (SC2) with conducting an unregistered offering of crypto asset securities in the form of non-fungible tokens (NFTs) that raised approximately $8 million to finance an animated web series called Stoner Cats. The order can be read here.

According to the SEC order, SC2 had offered and sold more than 10,000 NFTs to investors at approximately $800 each, selling out in a mere 35 minutes on July 27, 2021. These tokens were meant to finance an animated web series called "Stoner Cats." SC2's marketing campaign emphasized various aspects that led investors to anticipate profits—such as the resell options on the secondary market and their expertise in Hollywood and crypto projects. A 2.5 percent royalty for SC2 from each secondary market transaction was also part of the configuration of these NFTs. These activities led to over $20 million in transactions, all outside the framework of regulatory oversight.

Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement, emphasized that under federal securities laws, the economic realities of the offering determine what is considered a security. In the case of Stoner Cats, investors were led to believe that they would profit from the NFTs due to the promise of a successful web series and the team’s crypto expertise, marking these as investment contracts.

Carolyn Welshhans, Associate Director of the SEC’s Home Office, also highlighted that registration is crucial for protecting investors by providing them with the necessary disclosures to make informed decisions. Without admitting or denying the allegations, SC2 has agreed to a cease-and-desist order and will pay a civil penalty of $1 million. Additionally, a Fair Fund will be established to return monies to injured investors, and all NFTs in SC2's possession will be destroyed.

The SEC's action against Stoner Cats serves as a wake-up call for the burgeoning NFT market. It underscores the need for regulatory frameworks that can adapt to the fast-changing landscapes of crypto-assets while ensuring investor protection. As the SEC aptly pointed out, ignoring legal responsibilities while reaping the benefits of public offerings is not an option, regardless of whether the asset in question is a traditional security or an animal-themed NFT.

In the long run, the Stoner Cats case may set a precedent for how NFTs and other novel crypto-assets are treated under the law. It reminds investors and creators alike that behind the hype and FOMO, there are real legal obligations that need to be met.

While this development represents a critical juncture for the crypto and NFT communities, particularly as the fear of missing out (FOMO) still governs the NFT market, it has also sparked an internal debate within the SEC itself.

Two commissioners, Commissioner Hester M. Peirce, and Commission Mark T. Uyda, publicly objected to the SEC's actions. Their dissenting statement opens with the criticism of the Howey test that would seem to engulf a majority of crypto and NFT offerings by default, if they fit the criteria of the test.[i]

The Dissenters’ Argument

The dissenting commissioners voiced their concerns that the SEC's application of the Howey investment contract analysis is not just far-reaching, but it would also stifle creativity. They contend that the Stoner Cats case represents "fan crowdfunding," a practice common among artists and entertainers to fund their projects. The commissioners drew parallels between Stoner Cats NFTs and the "Star Wars" collectibles sold in the 1970s, questioning whether the SEC would have similarly cracked down on those had the same logic been applied.

According to the dissenters, the enforcement action against Stoner Cats not only discourages artists from embracing innovative ways to connect with their audience but also leaves them in a state of legal uncertainty. They call for clear regulatory guidelines that allow for creative experimentation without fear of legal repercussions.

What it Means for the Future

The dissenting voices within the SEC highlight the complexities of regulating a rapidly evolving technology like NFTs. While acknowledging that NFT creators are not exempt from securities laws, they argue for a more nuanced approach that accommodates the unique aspects of digital art and fan engagement.

In essence, these dissenting commissioners emphasize the need for balanced guidelines that protect investors while also fostering creative freedom. This nuanced perspective is vital for the future regulatory landscape surrounding NFTs and crypto assets at large.


The SEC's actions against SC2 and the subsequent internal dissent show the regulatory and ethical intricacies in the burgeoning NFT market. As we venture deeper into this evolving landscape, the debate between investor protection and creative freedom will continue to grow in prominence.

Regardless of the two dissenting voices, the SEC's action against Stoner Cats is a signal to the burgeoning NFT market-that registration may be required as the default posture. It also reminds us of need for arguably clearer regulatory frameworks that can adapt to the fast-changing landscapes of crypto-assets while ensuring investor protection.

This office has seen a surge in crypto-based offerings that are not just unregistered and unvetted by experienced securities lawyers, but constitute securities fraud. If you are considering investing in a crypto venture, or making what may constitute a securities offering, call us or email  We can help you be compliant with the securities laws.  We can also conduct due diligence on the offering and help you make a more informed decision so that you are not the victim a crypto scam or unregistered offering.

R Tamara de Silva

[i] SEC v. W.J. Howey Co., 328 U.S. 293 (1946)

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