Home NFT Will the SEC’s ‘Stoner Cats’ action have a chilling effect on NFT media projects?

Will the SEC’s ‘Stoner Cats’ action have a chilling effect on NFT media projects?

by Melai Briones

Earlier this month, the United States Securities and Exchange Commission (SEC) brought its second enforcement action against the creators of an NFT project, this time targeting the team behind Mila Kunis’s NFT-backed web series “Stoner Cats.” This case has raised concerns within the film and television industry as it highlights the growing trend of using NFTs to raise funds directly from fan bases, bypassing traditional financing and distribution systems.

The SEC’s approach to crypto and NFTs has been ambiguous, as the agency has not provided clear guidelines on which applications of NFTs are considered legal. This lack of regulatory clarity has created fear among creators, who worry that their projects could face regulatory scrutiny. The recent action against “Stoner Cats” has only intensified these concerns.

The SEC’s two commissioners, Hester Pierce and Mark Ueda, criticized the agency’s decision, arguing that it hinders innovation and creates uncertainty among creators. Independent television and film producers also share this sentiment and are now questioning whether their NFT-backed projects will be targeted next.

According to Justin Winters, co-founder and CEO of Web3 film studio Verified Labs, trying to comply with SEC rules and regulations is like hitting a moving target. Winters believes that the SEC should not issue fines until specific laws are established that creators can follow.

However, some industry experts believe that the action against “Stoner Cats” was justified. The project had claimed that the more successful the show, the more valuable the NFTs would become, which some see as a promise of future profits. It is important to note that not all NFT-backed media projects make such claims.

A key concern among legal experts is the SEC’s stance on NFT projects that charge creator royalties. The SEC has indicated that these projects could be considered unregistered securities schemes. This position could have significant implications for the NFT industry, affecting not only creators who rely on royalties to support artists but also the NFT marketplaces that enforce these charges.

If NFT marketplaces were classified as securities exchanges, they would need to obtain the same type of registration as traditional stock markets like the New York Stock Exchange and Nasdaq. This could be a significant blow to the NFT industry and may hinder innovation and growth.

The SEC’s current approach to NFTs reminds legal experts of its actions towards the crypto industry. Initially, the agency targeted companies that clearly violated securities laws but gradually expanded its scope to sue major crypto exchanges. This pattern raises concerns that the SEC’s regulatory appetite for NFTs may also broaden over time.

The uncertainty and fear triggered by the SEC’s action against “Stoner Cats” are likely to extend beyond the NFT-backed media projects. The impact may be felt throughout the industry, affecting other projects and market participants. It is crucial for the SEC to provide clear guidance on the legality of various NFT applications to foster innovation and protect creators while ensuring investor protection.

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