In a move indicative of the keen eye the Securities and Exchange Commission (SEC) keeps on the non-fungible token (NFT) market, the SEC issued a settled Order against Stoner Cats 2, LLC (“SC2”) on September 13, 2023. This marks its second NFT-related enforcement action. SC2 had offered and sold approximately 10,320 NFTs linked to characters from its animated web series, ‘Stoner Cats’.
As reported, the sale, which occurred on June 27, 2021, lasted a brief yet impactful 35 minutes, raising $8.2 million in ETH for the show. Activities on the secondary market commenced hastily with the NFTs starting to trade almost immediately after the sale.
A notable feature of the sales transactions was the configuring of the smart contract for the NFTs to distribute royalties to SC2. It’s a measure that demonstrates how such blockchain mechanisms can be leveraged to create a continuous revenue stream beyond the initial sale. However, the noteworthy occurrence here is the regulatory actions and the implications for future NFT sales from an enforcement perspective.
Givet the potential regulatory challenges, law professionals need to stay informed on the evolving landscape of NFT’s and the implications it holds for their clients, whether they are content creators, entrepreneurs, investors or large-scale businesses. Prudence, due diligence, and understanding of the space are paramount in providing quality counsel in this emerging and dynamic area of law.