Mila Kunis' Show Stoner Cats Says 'TTFN' to NFTs
Did you ever watch the adult cartoon series Stoner Cats that aired a couple of years ago? Yeah, neither did we. That's probably because they were available on a pretty exclusive streaming service on the Stoner Cats website. And if Netflix and HBO subscribers out there have been complaining about prices going up, you can count your blessings. Traditional streaming services cost peanuts compared to Stoner Cats. These kitties were selling at about $800 for 6 short episodes.
That's not the end of the elitism, though. This wasn't any traditional streaming service or transaction. To access the cartoons on the site, users needed to have purchased a Stoner Cats NFT. It was the NFT that unlocked the episodes for the holder. In July 2021, Stoner Cats offered 10,320 NFTs for 0.35 Ethereum (a cryptocurrency unit) or about $800 each. All of the NFTs sold out in 35 minutes, generating the equivalent of $8.2 million. The purpose of all of this was to raise money to produce the Stoner Cats web series.
If this sounds illegitimate, note that the people behind this operation are very well established in the entertainment industry. That 70s Show celebrity couple Mila Kunis and Ashton Kutcher co-produced the project and starred as the voices of two of the cat characters. Voicing their cat lady owner was the revered Jane Fonda, with her other kitty companions voiced by comedian Chris Rock and actor-producer Seth MacFarlane. All pretty big people with pretty deep pockets, so why did they need a gimmick to finance this feline fad?
We don't know, but the way they did it got them in trouble with the Securities and Exchange Commission. As it turns out, you can't spell 'Stoner Cats' without S-E-C. We'll summarize what the company did wrong and the legal consequences it's facing now, but first, a quick refresher on NFTs.
As you might know, NFT stands for "non-fungible token." But what's that a contrast to? Is there a fungible token? We'll try to help you parse out all the "non-" sense.
What you know as Bitcoin, Dogecoin, Ethereum, cash, or even good old-fashioned gold are examples of what are called, by contrast to NFTs, "fungible tokens." Fungible cryptocurrencies have more in common with traditional currencies like the U.S. dollar than you might think, at least compared to NFTs. Fungible tokens have some important common characteristics. For one, they're uniform and interchangeable. One dollar bill is the same as any other in terms of value, and you don't have to distinguish them. The same goes for Bitcoin. Fungible tokens are also divisible. Just like you can break a $100 bill into $50s, $20s, $10s, etc., you can break a Bitcoin into smaller units known as "satoshis," which are all also uniform and interchangeable. Finally, fungible tokens are commonly used and traded by many different people on markets for commodities and services.
A non-fungible token, on the other hand, does not share these properties. For one, it's indivisible. You can't break into smaller units that separately still add up to the value of the whole; the value of the NFT is tied to the whole token. And NFTs aren't uniform, but unique. Each NFT is distinct, and so comes with a distinct value. This makes it not interchangeable one for one with other NFTs. Lastly, NFTs often come with a record of provenance or ownership, showing their ownership history and who currently holds the token.
The tokens created by Stoner Cats are known as "utility NFTs." As the name implies, these are tokens that have an added value and function by giving their holder membership to some service or club or by acting as a ticket to an event. For example, the folks behind the Coachella Music Festival grant the holders of their "Coachella Collectibles" NFTs with lifetime passes to the festival. Compare these to the traditional collectible NFTs, which just serve as digital art to be looked at, and perhaps as a status symbol, but don't offer much more in terms of functionality.
With many NFTs, the creators of the tokens receive royalties every time they are traded on certain markets. In the case of Stoner Cats, the creators received a 2.5% royalty on each sale. Since the majority of the NFTs were resold on the secondary market, that generated a significant revenue for the creators in addition to the initial sale. The whole project seemed to be going successfully.
Secret Securities Signal SEC
Not so fast, said the feds. Turns out, what Stoner Cats was doing violated the Securities Act of 1933.
Why? Well, the company wasn't just marketing their NFTs like art, or even like standard utility NFTs. Sure, buyers were promised they'd get access to the web show if they owned an NFT, and that was delivered. But they were promised even more: the company was holding out the NFTs as investments. Investors were told that “the more successful the show, the more successful your NFT" will be. The way the company was marketing them, buyers "had a reasonable expectation of obtaining a profit based on [Stoner Cats'] managerial and entrepreneurial efforts," according to the SEC. And that's what made plain old NFTs into investment securities.
But securities have to be registered with the SEC, and Stoner Cats didn't do this. By issuing, offering, and selling the NFTs without registering, the company violated an important section of the Securities Act. Carolyn Welshhans, Associate Director of the SEC's Home Office, explained that the act's registration requirement is meant to protect investors by providing them with important disclosures that allow them to make informed investing decisions; it's not fair to reap the benefits of publicly trading securities while shunning the legal responsibilities that come with it.
Stoner Cats May Have More Lives
So what are the consequences? In this case, Stoner Cats and the SEC settled. The SEC issued a cease-and-desist order with which the company promised to comply. Part of the deal was that Stoner Cats had to destroy all NFTs in their possession and make certain efforts for damage control of the investors they'd already sold to. They were also fined $1 million.
All in all, it's really not a bad deal for Stoner Cats. The fine is still a fraction of the money they made selling the NFTs, and the company avoided the criminal charges that sometimes come with violations of the Securities Act. The biggest blow was probably just the negative publicity for the celebrities behind the show. Mila and Ashton are now facing the public, but hey, at least they're not saying "it wasn't me!"
- Danny Masterson from That 70s Show Gets 30 to Life (FindLaw's Law and Daily Life blog)
- Can You Legally Pass on Cryptocurrency or NFTs in a Will? (FindLaw's Learn About the Law)
- What Are Digital Assets? (FindLaw's Do-It-Yourself Legal Forms)
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