Yesterday, September 13, the US Securities and Exchange Commission (SEC) charged Stoner Cats 2 LLC for conducting an unregistered offering of crypto asset securities. The offering, in the form of non-fungible tokens (NFTs), raised approximately $8 million to finance an animated web series called Stoner Cats. The SEC’s latest action has drawn sharp criticism from Ripple’s Chief Legal Officer, Stuart Alderoty.
On Twitter, Alderoty slammed the SEC’s action as a “PR stunt,” possibly to claim an easy and quick success after recent hefty defeats. He stated, “I don’t know all the facts here, but I do know that a settlement to avoid a crushing SEC process without ‘admitting or denying’ anything is binding on no one. A cynic would call it a PR stunt. What matters is that when seriously challenged in court, the SEC continues to lose.”
Alderoty’s comments allude to the SEC’s recent legal setbacks in the crypto space. Ripple itself had a partial victory against the SEC, and the agency also lost to Grayscale, which plans to convert its Bitcoin Trust (GBTC) into a Bitcoin Spot ETF. Both victories, by Ripple and Grayscale, can be seen as undermining the SEC’s regulatory policy, as the relevant judges dismantled the regulator’s arguments.
On the other hand, Alderoty also alludes to Ripple’s determination to continue its legal fight. As Ripple President Monica Long reported, “We are planning to continue to fight the case all the way through.” Other Ripple executives have highlighted the company’s willingness to take the case to the Supreme Court if necessary. Ripple CEO Brad Garlinghouse believes that the company’s chances of success increase as the case moves up the judicial ladder, citing a more conservative viewpoint at higher levels.
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The SEC’s decision to charge Stoner Cats 2 LLC has sparked significant internal disagreement. Commissioners Hester M. Peirce and Mark T. Uyeda voiced their dissent, emphasizing that the application of the Howey investment contract analysis to this case is problematic. They argue that it “lacks any meaningful limiting principle” and could stifle creativity across various sectors.
Drawing parallels, the commissioners highlighted the similarities between the Stoner Cats NFTs and Star Wars collectibles from the 1970s. They posed a thought-provoking question: Would the Star Wars collectibles, which were essentially IOU certificates for future action figures, be considered investment contracts under today’s SEC analysis?
The commissioners’ statement underscores the potential consequences of the SEC’s actions. They warn that by applying securities laws to NFTs in the same manner as physical collectibles, artists’ creativity might be suppressed due to legal ambiguities. They advocate for clearer guidelines for artists and creators who wish to explore NFTs as a means to support their work and engage with their fan communities.
Furthermore, they emphasized that the Stoner Cats NFT purchasers received exactly what they paid for: a unique image of a character, access to the animated series, and the thrill of being part of a popular phenomenon. The commissioners believe that the SEC’s current approach could deter content creators from leveraging social networks for content creation and distribution, adding to the legal challenges faced by artists, writers, musicians, filmmakers, and other creators.
Overall, the SEC’s latest action against Stoner Cats 2 LLC and the dissenting statement from within the agency highlight the ongoing regulatory uncertainty in the crypto space. As Alderoty pointed out, the SEC’s track record in court raises questions about the effectiveness of its regulatory approach. But litigation currently seems to be the only way to put the SEC in its place.
It is important to note that the outcome of the Stoner Cats case and the broader regulatory implications for NFTs and crypto securities remain uncertain. However, these developments serve as a reminder that the crypto industry is still navigating a complex and evolving landscape of regulations.
As for Ripple, their legal battles with the SEC continue to unfold. The company remains committed to challenging the agency’s classification of XRP as a security and defending the interests of its community. Ripple’s victories against the SEC and the dissent within the agency itself indicate that the outcome of their legal fight could have significant implications for the wider crypto industry.
In conclusion, the SEC’s actions against Stoner Cats 2 LLC have sparked criticism and dissent within the agency. Ripple’s Chief Legal Officer, Stuart Alderoty, has criticized the move as a “PR stunt,” highlighting the SEC’s recent legal defeats in the crypto space. The dissenting commissioners at the SEC have raised concerns about the potential stifling of creativity and the need for clearer guidelines in the application of securities laws to NFTs. These developments underscore the ongoing regulatory uncertainty in the crypto industry and the importance of legal battles in shaping its future.
