It was “Fan Crowdfunding” – SEC Commissioners Peirce and Uyeda Criticize Stoner Cats NFT Enforcement Action

Earlier today, the Securities and Exchange Commission (SEC) announced an enforcement action against Stoner Cats and the creation of non-fungible tokens (NFTs) that were sold to the public. In total, Stoner Cats sold over $8 million in these NFTs which then were available for resale as each was unique – similar to a numbered physical print – widely used by artists today. The SEC decided it was actually an unregistered sale of securities with Stoner Cats settling the charges by paying a penalty. Stoner Cats neither admitted guilt in regard to the charges – nor denied them.

Following the notice by the SEC regarding the action taken against Stoner Cats, SEC Commissioners Hester Peirce and Mark Uyeda issued a statement criticizing the decision, describing the NFT sale as “fan crowdfunding,” adding that it is common practice in the world of art.

The two Commissioners said the NFTs are similar to the “Star Wars collectibles sold in the 1970s”.  They explained the dilemma:

“Were we to apply the securities laws to physical collectibles in the same way we apply them to NFTs, artists’ creativity would wither in the shadow of legal ambiguity. Rather than arbitrarily bringing enforcement actions against NFT projects, we ought to lay out some clear guidelines for artists and other creators who want to experiment with NFTs as a way to support their creative efforts and build their fan communities.”

The SEC, under the leadership of Chair Gary Gensler, has shied away from providing clear guidance in regard to digital assets, claiming they are ALL securities – with the exception of Bitcoin. On the other side of the coin, Congress has been slow to create legislation better defining when a digital asset is a security and when it is something else. This has left the entire digital asset sector flummoxed, ostensibly hindering innovation.

Commissioners Peirce and Uyeda believe the application of securities laws pertaining to Stoner Cats makes little sense. Unfortunately, that is all the two dissenting Commissioners can do until the SEC administration changes – or Congress approves a law addressing the opaque environment. There is little chance of this happening unless there is a change at the ballot box in 2024.


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