SEC Charges NFT Creator with Unregistered Offering of "Stoner Cats"

SEC Charges Creator of Stoner Cats Web Series for Unregistered Offering of NFTs

The Securities and Exchange Commission today charged Stoner Cats 2 LLC (SC2) with conducting an unregistered offering of crypto asset securities in the form of purported non-fungible tokens (NFTs) that raised approximately $8 million from investors to finance an animated web series called Stoner Cats.

According to the SEC order, on July 27, 2021, SC2 offered and sold to investors more than 10,000 NFTs for approximately $800 each, selling out in 35 minutes. The order finds that both before and after Stoner Cats NFTs were sold to the public, SC2’s marketing campaign highlighted specific benefits of owning them, including the option for owners to resell their NFTs on the secondary market. In addition, the order finds that, as part of the marketing campaign, the SC2 team emphasized its expertise as Hollywood producers, its knowledge of crypto projects, and the well-known actors involved in the web series, leading investors to expect profits because a successful web series could cause the resale value of the Stoner Cats NFTs in the secondary market to rise. Further, the order finds that SC2 configured the Stoner Cats NFTs to provide SC2 a 2.5 percent royalty for each secondary market transaction in the NFTs and it encouraged individuals to buy and sell the NFTs, leading purchasers to spend more than $20 million in at least 10,000 transactions. According to the SEC’s order, SC2 violated the Securities Act of 1933 by offering and selling these crypto asset securities to the public in an unregistered offering that was not exempt from registration.

Private funds prepare to spend billions on compliance after SEC rule

Private equity, venture capital and hedge fund groups are preparing to spend billions of dollars on compliance and legal advice as they cope with the biggest regulatory changes to hit the industry since the aftermath of the 2008 crisis.

The US Securities and Exchange Commission’s decision last month to adopt sweeping new rules for the private fund industry is prompting some smaller fund managers to look for their first full-time general counsels and chief compliance officers.

Larger firms are considering not only whether to recruit more staff, but also the need for different kinds of lawyers in light of new rules that will change the way they interact with their investors. And the entire industry is gearing up to invest more on compliance and reporting technology.

California Is About To Usher In A New Era Of Corporate Transparency

This week, California lawmakers passed a first-in-the-nation legislative package that, on first blush, may sound like a highly technical matter of bookkeeping, but in fact represents a watershed moment for corporate transparency and climate risk management that will have nationwide impacts.

Under the two-bill package, which awaits the signature of Gov. Gavin Newsom, large companies that do business in the state will now be required to report their climate pollution across their supply chains, as well as the risks they face from a warming climate. Some 10,000 companies are estimated to face new reporting requirements.

Hedge Funds Facing More SEC Reporting Mandates, Gensler Says

Wall Street’s main regulators are advancing on a controversial bid to boost how much information big hedge funds must share with the US government.

Securities and Exchange Commission Chair Gary Gensler signaled on Wednesday that his agency and the Commodity Futures Trading Commission may soon require large private funds to confidentially give more details on borrowing and counter-party exposure, liquidity and other metrics. The agencies proposed the mandates last year.

“Stay tuned,” Gensler said during a conference hosted by Better Markets, a Washington-based group that generally advocates for tighter financial rules.

Former SEC Commissioner Dan Gallagher Joins Vint Advisory

Vint, the premier platform offering financial products for the wine and spirits industry, proudly welcomes Dan Gallagher to its advisory board. With an extensive background in regulatory matters, financial markets, and corporate governance, Gallagher’s expertise will be pivotal in guiding Vint’s strategic growth as it transforms the wine and spirits industry through innovative asset solutions.

Regional Bank Hit with Banking Crisis-Related Securities Suit

Earlier this year three large U.S. banks failed in a sequence of events that has been called The Banking Crisis of 2023. While federal regulators acted decisively and forcefully to prevent the bank failures from triggering a contagion event, the underlying problems that caused the three banks to fail continued to trouble many other U.S. lending institutions. Among the banks that faced continued challenges and continuing questions is the California-based bank Pac West, which in July 2023 announced that as a way to try to deal with its woes it was being acquired by the Bank of California. Now, a plaintiff shareholder has filed a securities class action lawsuit against Pac West and certain of its directors and officers alleging misrepresentations in connection with the events surrounding the other banks’ failures ad leading up to the July merger. The new lawsuit is the latest example of the ways in which ongoing issues in the banking sector are leading to securities class action lawsuit filings. A copy of the new complaint can be found here.

Goldman Sachs Fires Transaction Banking Chief Hari Moorthy, Others for Lapses

Goldman Sachs Group Inc. fired transaction banking executives including the head of the business, Hari Moorthy, over compliance lapses, a person with direct knowledge of the matter said.

The Wall Street firm terminated several leaders of the unit who communicated on unauthorized channels and didn’t comply with an internal review, according to a memo to employees seen by Bloomberg. Moorthy, who isn’t named in the memo, didn’t immediately respond to messages seeking comment.

“We are not going to comment on individual disciplinary matters. As a general matter, we take our communications policy seriously, and we expect all of our personnel to comply with it,” the bank said in a statement. “Goldman Sachs remains fully committed to our transaction banking business.”

What Will Be the Next Target of the SEC’s Enforcement Regime?

Having closely observed the actions of regulators, we envision crypto wallets and certain digital asset transactions will be the next target.

Drawing from prior federal enforcement actions and signals from these agencies in publications and notices, we anticipate that digital asset enforcement will grow in two ways: the Securities Exchange Act of 1934 (“Exchange Act”) may be interpreted to encompass regulation of crypto wallets as brokers and traditional financial institution subject to Anti-Money Laundering and Know Your Customer laws (AML/KYC) will face challenges with compliance in the digital asset space in light of tools such as mixers.

The CFTC Is Cracking Down on Crypto

Last week, the Commodity Futures Trading Commission charged three decentralized finance (DeFi) platforms – Opyn, Inc., ZeroEx (0x), Inc. and Deridex, Inc. – with operating illegal derivatives trading services. Notably, the CFTC reprimanded the smart-contract based trading platforms for supporting tokens that were issued by third-parties. Just a week earlier, a New York court dismissed similar claims against Uniswap in a class action case, with a judge arguing that the decentralized exchange platform was not accountable for third-party “scam tokens” listed to its platform. The CFTC charges were significant in the context of the wider U.S. regulatory landscape. For several years now, the CFTC and Securities and Exchange Commission have been in a jurisdictional turf war over who should regulate the U.S. crypto industry. The industry has generally lobbied in favor of oversight by the CFTC, which holds a reputation as the less strict agency, but last week’s aggressive CFTC actions drew long-standing assumptions about the regulator into doubt….