1 00:00:05,480 --> 00:00:08,039 Welcome back, everyone. I am Cass Piancy. 2 00:00:08,039 --> 00:00:10,200 I'm joined, as usual, by my partner in crime. 3 00:00:10,280 --> 00:00:11,560 We've already recorded one today. 4 00:00:11,560 --> 00:00:14,840 I'm not going to play pretend and say I haven't asked you how 5 00:00:14,840 --> 00:00:16,160 you're doing. You're doing good. 6 00:00:16,160 --> 00:00:17,600 I'm doing good. We're going to be talking about 7 00:00:17,720 --> 00:00:21,160 Nft's and whether or not their securities or at least whether 8 00:00:21,160 --> 00:00:24,280 or not the SEC thinks their securities, when they think 9 00:00:24,280 --> 00:00:27,200 their securities and why they think they might be securities, 10 00:00:27,200 --> 00:00:29,440 right. And the reason this got brought 11 00:00:29,440 --> 00:00:33,760 into everyone's sort of line of sight is because an NFT 12 00:00:33,960 --> 00:00:37,120 collection called Stoner Cats that had been started or at 13 00:00:37,120 --> 00:00:40,890 least Co founded by Mila Kunis and I think Ashton Kutcher was 14 00:00:40,970 --> 00:00:42,170 in on that as well. I'm not. 15 00:00:42,210 --> 00:00:44,730 I don't remember. I think Mila Kunis was the face 16 00:00:44,730 --> 00:00:45,890 of it. But I think they're both 17 00:00:45,890 --> 00:00:47,890 involved. And some other cocreators 18 00:00:47,890 --> 00:00:51,530 created this thing called Stoner cats and now Stoner Cats was 19 00:00:51,530 --> 00:00:55,010 this collection of images of what it sounds like. 20 00:00:55,090 --> 00:01:00,050 Stoned cats and cool haha super super awesome weed and cats. 21 00:01:00,090 --> 00:01:02,690 Very funny. And they decided they were going 22 00:01:02,690 --> 00:01:06,650 to do a show, a web series based on this. 23 00:01:06,690 --> 00:01:09,250 And they went through the documents. 24 00:01:09,250 --> 00:01:12,010 Actually they they promised some pretty specific things, 25 00:01:12,090 --> 00:01:16,530 including that they were going to do at least one episode for 26 00:01:16,530 --> 00:01:18,050 three seasons, something like that. 27 00:01:18,170 --> 00:01:19,970 Obviously they they didn't do that. 28 00:01:20,010 --> 00:01:23,730 And part of the issue appears to be that the way these NFT's 29 00:01:23,730 --> 00:01:26,930 work, and many NFT's for that matter, is that they offered 30 00:01:26,930 --> 00:01:32,050 royalties to the initial founders and creators of these 31 00:01:32,050 --> 00:01:34,820 NFT's. What that entails is that every 32 00:01:34,820 --> 00:01:38,260 time someone buys one of these Nft's, they get like a 2.5% 33 00:01:38,260 --> 00:01:40,740 kickback on that sale, which doesn't sound like much right 34 00:01:40,740 --> 00:01:42,980 out the gate. But considering volume and all 35 00:01:42,980 --> 00:01:45,300 this other stuff, you end up going like, oh, they made like a 36 00:01:45,300 --> 00:01:48,500 half $1,000,000 in royalty like that, which it's a lot of money. 37 00:01:48,580 --> 00:01:51,180 They also sold out of all of their Nft's when they put them 38 00:01:51,180 --> 00:01:52,620 on the market. Whether or not they bought a 39 00:01:52,620 --> 00:01:54,260 bunch of those I think is up for debate. 40 00:01:54,260 --> 00:01:56,460 But basically the SEC said, hey, you guys are doing these 41 00:01:56,460 --> 00:01:59,060 royalties on these Nft's. This is a security. 42 00:01:59,140 --> 00:02:03,140 And to be clear, the people who did this said, Oh no, OK, well 43 00:02:03,220 --> 00:02:04,220 we're done. You win. 44 00:02:04,460 --> 00:02:06,780 We're not going to admit fault. We're not going to admit guilt 45 00:02:06,780 --> 00:02:08,419 here. You guys can just take some 46 00:02:08,419 --> 00:02:11,020 money, we'll pay the fine and we'll stop doing the sonar cat. 47 00:02:11,020 --> 00:02:13,340 For what it's worth, I don't think you can actually buy them 48 00:02:13,340 --> 00:02:16,140 anywhere right now. Maybe it's just because there's 49 00:02:16,140 --> 00:02:18,900 none up for sale. After the SEC took this action, 50 00:02:18,900 --> 00:02:24,940 the floor price increased 250%. It's still up 175% since before 51 00:02:24,940 --> 00:02:29,300 the SEC action. And the volume went up, I think 52 00:02:29,300 --> 00:02:33,020 almost 3000%. So everyone started buying it 53 00:02:33,020 --> 00:02:36,060 and trading it and moving them around as soon as this SEC 54 00:02:36,060 --> 00:02:40,140 action was was pushed out. I think this kind of SEC action 55 00:02:40,300 --> 00:02:44,340 is similar in my mind to the EOS action that took place. 56 00:02:44,340 --> 00:02:46,940 In case anyone is unfamiliar with EOS, this was a Brock 57 00:02:46,940 --> 00:02:51,380 Pierce and Daniel Larimer project from years ago that was 58 00:02:51,380 --> 00:02:56,140 going to change the financial system and raised $4 billion 59 00:02:56,180 --> 00:03:00,700 from their ICO and then got fined by the SECI believe it was 60 00:03:00,700 --> 00:03:02,740 $24 million. Who gives this shit? 61 00:03:02,740 --> 00:03:05,460 No one cares about that 24 million, $1,000,000 fine when 62 00:03:05,460 --> 00:03:07,540 you've raised billions of dollars. 63 00:03:07,540 --> 00:03:09,580 And I think everybody understood that when it happened. 64 00:03:09,700 --> 00:03:11,580 And to me this feels kind of similar, right? 65 00:03:11,580 --> 00:03:13,740 So these guys raised, I believe it's something like 8 to 66 00:03:13,740 --> 00:03:17,340 $9,000,000 including these royalties that they got and they 67 00:03:17,340 --> 00:03:18,900 were fined, I don't know, a few million. 68 00:03:19,020 --> 00:03:22,860 They made a profit for sure. They profited on this 100% sure. 69 00:03:23,140 --> 00:03:25,420 And what they're getting out of it, ultimately, is that they 70 00:03:25,420 --> 00:03:27,980 don't have to fight the SEC now. They don't have to pay legal 71 00:03:27,980 --> 00:03:30,860 fees, and the SEC gets, oh, look, see, they're not willing 72 00:03:30,860 --> 00:03:33,420 to fight us on this. So this means NFT's are 73 00:03:33,420 --> 00:03:34,780 security. That's not the full story, 74 00:03:34,780 --> 00:03:36,380 Bennett. Why don't you jump in here now? 75 00:03:36,420 --> 00:03:41,100 What's interesting, so Stoner Katz is the second NFT case that 76 00:03:41,100 --> 00:03:44,180 the SEC pursued. Like a week or two weeks before 77 00:03:44,180 --> 00:03:47,700 they pursued Stoner Katz, they went after Impact Theory, which 78 00:03:47,700 --> 00:03:52,620 was a smaller NFT project, less illustrious names involved. 79 00:03:52,700 --> 00:03:56,540 And the creators of that NFT project kept telling their 80 00:03:56,540 --> 00:03:58,580 investors. That they could get tremendous 81 00:03:58,580 --> 00:04:01,380 value and that they were going to make sure that we do 82 00:04:01,380 --> 00:04:03,460 something. That by any reasonable standard, 83 00:04:03,580 --> 00:04:06,340 people get a crushing, hilarious amount of value. 84 00:04:06,580 --> 00:04:09,580 And they even told these people buying their NFT's that these 85 00:04:09,580 --> 00:04:12,820 NFT's were the mechanism by which communities will be able 86 00:04:12,820 --> 00:04:15,780 to capture economic value from the growth of the company they 87 00:04:15,780 --> 00:04:18,019 support. This one again settled with the 88 00:04:18,019 --> 00:04:23,580 SEC and may more clearly be a security than Stoner cats. 89 00:04:23,580 --> 00:04:26,500 And I think this is what kind of gets interesting here is. 90 00:04:26,850 --> 00:04:29,970 Even in the impact theory case I just discussed, there were two 91 00:04:29,970 --> 00:04:33,850 SEC commissioners who disagreed. Commissioners Pierce and Oyeta 92 00:04:33,850 --> 00:04:36,170 did not support this and wrote their own digression. 93 00:04:36,170 --> 00:04:39,970 And they highlighted that the SEC does not routinely bring 94 00:04:39,970 --> 00:04:42,650 enforcement actions against people that sell watches, 95 00:04:42,810 --> 00:04:45,890 paintings, or collectibles, along with vague promises to 96 00:04:45,890 --> 00:04:47,930 build the brand and increase the resale value. 97 00:04:47,930 --> 00:04:49,850 And what I thought was interesting, and what you and I 98 00:04:49,850 --> 00:04:52,810 had a brief conversation about, is Preston Byrne, who we've had 99 00:04:52,810 --> 00:04:56,290 on the podcast before, wrote a blog post taking a look at these 100 00:04:56,290 --> 00:04:59,770 two cases. In his stance was basically that 101 00:05:00,170 --> 00:05:04,050 the impact Theory one when I just discussed did seem more 102 00:05:04,050 --> 00:05:06,650 clearly like a security in the way it was marketed, in the way 103 00:05:06,650 --> 00:05:09,330 it was sold, and in the expectations investors 104 00:05:09,330 --> 00:05:11,850 reasonably had. But he thought that the Stoner 105 00:05:11,850 --> 00:05:16,610 Katz one was less clearly a violation of securities law. 106 00:05:16,650 --> 00:05:20,330 Peyerson Ojeda again highlighted that this was an example of fan 107 00:05:20,330 --> 00:05:24,850 crowdfunding, and Preston pointed towards how this was not 108 00:05:24,850 --> 00:05:28,210 presented in that same. Way to purchasers. 109 00:05:28,450 --> 00:05:32,370 And so I think Stoner Cats is 1 where they kind of wanted to go 110 00:05:32,370 --> 00:05:35,170 after it because there were so many celebrities involved. 111 00:05:35,370 --> 00:05:38,170 Mila Kunis was involved, as you mentioned, Ashton Kutcher was an 112 00:05:38,170 --> 00:05:42,010 actor, Chris Rock was an actor. There were names involved here 113 00:05:42,210 --> 00:05:45,930 and you want to discourage that caliber of name from doing this 114 00:05:45,930 --> 00:05:48,050 type of projects. You go for a ticky tacky 115 00:05:48,050 --> 00:05:50,280 settlement. But more broadly, what we're 116 00:05:50,280 --> 00:05:55,080 looking at in both these two cases is that making your badly 117 00:05:55,080 --> 00:05:59,440 formed project in which you hope to return value to people who 118 00:05:59,440 --> 00:06:03,440 give you money and NFT instead of some other form of token does 119 00:06:03,440 --> 00:06:06,160 not mean you'll avoid the Sec's attention, right. 120 00:06:06,200 --> 00:06:10,200 And and so I think a big part of this has been the royalty aspect 121 00:06:10,200 --> 00:06:14,240 the SEC has been honing in on. And I want to be clear here for 122 00:06:14,240 --> 00:06:16,840 everyone because I think it's, it's a pretty important 123 00:06:16,840 --> 00:06:18,360 distinction in my mind and we'll see. 124 00:06:18,360 --> 00:06:20,200 I don't know if this will actually play out in court. 125 00:06:20,200 --> 00:06:23,960 It might be that what I'm saying is totally off, off key and 126 00:06:23,960 --> 00:06:26,360 wrong again. We are not lawyers. 2 Industries 127 00:06:26,360 --> 00:06:29,160 that instantly come to mind when when I think of royalty, and 128 00:06:29,160 --> 00:06:32,780 that is TV and movies and music, right. 129 00:06:32,900 --> 00:06:36,060 In those two industries, royalties play a pretty big 130 00:06:36,060 --> 00:06:38,460 role. We're watching a WGA strike, a 131 00:06:38,460 --> 00:06:41,220 Writers Guild of America strike go on right now, particularly 132 00:06:41,220 --> 00:06:44,060 because of royalties. The writers can't get royalties 133 00:06:44,060 --> 00:06:46,980 on streaming anymore because these streaming services don't 134 00:06:46,980 --> 00:06:50,700 offer the market data to even give them any of these 135 00:06:50,700 --> 00:06:53,100 royalties, right? But this has been livelihoods 136 00:06:53,300 --> 00:06:57,580 for decades for actors, writers, producers, whatever they they 137 00:06:57,580 --> 00:07:00,620 all have been able to make money on these royalties forever. 138 00:07:00,660 --> 00:07:06,580 There's a fair argument to be had that if your NFT is a TV 139 00:07:06,580 --> 00:07:10,460 like thing, which I guess you could argue Stoner Katz was that 140 00:07:10,780 --> 00:07:13,180 that the royalties in a sense makes sense. 141 00:07:13,300 --> 00:07:16,860 I think that you need to do more probably than seven episodes. 142 00:07:16,860 --> 00:07:18,380 I don't know. It would be up for debate. 143 00:07:18,380 --> 00:07:19,860 I don't know. I don't know where that would, 144 00:07:19,860 --> 00:07:21,620 where that would come in. But the second one that I want 145 00:07:21,620 --> 00:07:26,120 to talk about is musicians where like again, record sales indeed 146 00:07:26,360 --> 00:07:29,000 do give you royalties for the rest of your career if you have 147 00:07:29,000 --> 00:07:31,240 the rights to the songs and the and and all of that. 148 00:07:31,440 --> 00:07:35,160 And I know someone on that I follow on Twitter who actually I 149 00:07:35,280 --> 00:07:37,520 I like a lot of the songs that he puts out there. 150 00:07:37,600 --> 00:07:40,920 Jonathan Mann, I follow him. I find a lot of his music 151 00:07:40,920 --> 00:07:44,120 entertaining. It's silly and he he turns a lot 152 00:07:44,120 --> 00:07:46,400 of it into NFT's. He does royalties as well for 153 00:07:46,400 --> 00:07:48,200 that. And I I get it. 154 00:07:48,320 --> 00:07:50,200 I actually get that. I'm like Oh well that makes 155 00:07:50,200 --> 00:07:53,600 sense. Counter to this is the sale of 156 00:07:53,940 --> 00:07:55,820 art pieces is the sale of painting. 157 00:07:55,900 --> 00:07:58,500 If I buy a painting from a painter, you know what happens 158 00:07:58,500 --> 00:08:01,380 when I resell that painting, whether I resell it for a profit 159 00:08:01,380 --> 00:08:02,380 or a loss. Do you? 160 00:08:02,380 --> 00:08:06,180 Do you want to guess how much of the money I make on that resale? 161 00:08:06,260 --> 00:08:10,260 The painter gets 00, They do not receive anything for it. 162 00:08:10,260 --> 00:08:11,620 Collectibles. You want to talk about Pokémon 163 00:08:11,620 --> 00:08:14,300 cards. How much does Namco get? 164 00:08:14,300 --> 00:08:18,740 When I resell a Pokémon card 0, sure, they don't get anything. 165 00:08:18,780 --> 00:08:22,180 So the royalties in that aspect, I do understand why they're 166 00:08:22,180 --> 00:08:23,340 trying to say they're a security. 167 00:08:23,380 --> 00:08:25,380 It's a dividend. And Preston highlights, per this 168 00:08:25,380 --> 00:08:28,380 in the blog post. And like, imagine I paint a 169 00:08:28,380 --> 00:08:32,020 picture and there's someone who wants to buy it for $10,000. 170 00:08:32,510 --> 00:08:38,070 And I say, what if instead I sell it for you for $1000 and 171 00:08:38,350 --> 00:08:43,270 10% of any of whatever you end up selling it for in the future, 172 00:08:43,470 --> 00:08:45,350 right? That doesn't make the painting 173 00:08:45,350 --> 00:08:48,530 itself a security right. And I think how many of those 174 00:08:48,530 --> 00:08:51,930 agreements exist, I would love to know, because that is not a 175 00:08:51,930 --> 00:08:53,690 common agreement. What is? 176 00:08:53,810 --> 00:08:56,370 The answer is probably non zero, right? 177 00:08:56,530 --> 00:08:59,730 Like well and often that's not how artist kickbacks work, 178 00:08:59,730 --> 00:09:01,170 right? The way it generally works is an 179 00:09:01,170 --> 00:09:05,170 artist sells some pieces to a collector at a lower price and 180 00:09:05,170 --> 00:09:08,220 then one like. A Halo piece at a higher price, 181 00:09:08,340 --> 00:09:10,660 which then revalues the entire collection. 182 00:09:10,820 --> 00:09:12,980 So then the collector is able to make the money on that and the 183 00:09:13,020 --> 00:09:16,420 artist then able to sell future price pieces at a higher price. 184 00:09:16,420 --> 00:09:19,100 Not that that's a good change in terms of that arrangement in the 185 00:09:19,100 --> 00:09:21,540 way I describe. Make it necessarily a security 186 00:09:21,620 --> 00:09:25,060 The art market is bred for money laundering and tax evasion. 187 00:09:25,060 --> 00:09:27,980 Like that's that's what the art. Market literally just described 188 00:09:27,980 --> 00:09:30,500 market manipulation. That's what I just 100. 189 00:09:30,540 --> 00:09:33,180 It's just not illegal because it's a collectibles market. 190 00:09:33,300 --> 00:09:36,300 And the tax, the tax shit, donating it to museums, doing 191 00:09:36,300 --> 00:09:39,540 all all sorts of weird scammy shit in the art market. 192 00:09:39,540 --> 00:09:41,140 I'm not trying to deny that at all. 193 00:09:41,300 --> 00:09:44,500 But if we're going to try to make kind of strict lines in the 194 00:09:44,500 --> 00:09:48,020 sand about what a security is, I do want to say that when you're 195 00:09:48,020 --> 00:09:51,540 getting kickbacks on every sale of a painting, that sounds so 196 00:09:51,540 --> 00:09:54,940 much more like a dividend to me and a securities offering than 197 00:09:54,940 --> 00:09:57,780 it does the way a normal art market works. 198 00:09:57,860 --> 00:10:01,140 And royalties don't sound that way to me. 199 00:10:01,340 --> 00:10:04,100 They really don't right it. It's a dividend, but it's not. 200 00:10:04,220 --> 00:10:06,300 It's not. It's basically saying like okay, 201 00:10:06,300 --> 00:10:10,180 you did this work in this thing years ago, and if you have to 202 00:10:10,180 --> 00:10:13,140 repay a whole team, because it's not, it's not an individual 203 00:10:13,140 --> 00:10:16,260 taking full credit for it. It's writers, actors, producers, 204 00:10:16,260 --> 00:10:18,980 directors. It's the grip, it's the lighting 205 00:10:18,980 --> 00:10:20,700 guy, It's it's every it's everybody. 206 00:10:20,860 --> 00:10:22,820 And and the same for a musician as well. 207 00:10:22,820 --> 00:10:25,980 Usually I think that's democratized a bit, but for a 208 00:10:25,980 --> 00:10:28,300 musician as well, you're going into a studio, you're working 209 00:10:28,300 --> 00:10:30,740 with a producer, you're working with a whole band, you're 210 00:10:30,740 --> 00:10:33,860 working with all of these different people who hopefully 211 00:10:33,860 --> 00:10:37,020 are going to be receiving some sort of monetary compensation 212 00:10:37,140 --> 00:10:39,780 forever for the work that they've done for this thing. 213 00:10:39,860 --> 00:10:42,500 And and again, the art market is not the same as that. 214 00:10:42,580 --> 00:10:45,340 Maybe we see some changes in this, maybe it becomes less 215 00:10:45,340 --> 00:10:49,300 regulated, maybe they or they regulate the royalties aspects 216 00:10:49,300 --> 00:10:52,300 of these industries further. I don't know, but I'm trying to 217 00:10:52,300 --> 00:10:55,140 explain there is there is a difference between these 218 00:10:55,140 --> 00:10:57,300 industries in the real world. Sure. 219 00:10:57,460 --> 00:10:59,980 I think kind of just to put a cap on this, there's two things 220 00:11:00,020 --> 00:11:03,550 I want to kind of. Accentuate Stonercats to me 221 00:11:03,590 --> 00:11:05,910 seems like the SEC trying to make a case, like we said, 222 00:11:05,910 --> 00:11:07,870 because there's these names involved and they want to 223 00:11:07,870 --> 00:11:10,990 discourage that kind of thing. I think the art market gets away 224 00:11:10,990 --> 00:11:13,550 with a lot because everyone involved is probably like an 225 00:11:13,550 --> 00:11:17,190 accredited investor, right? The Sec's rules, they're already 226 00:11:17,190 --> 00:11:19,630 kind of loose, so they're not, they don't really care. 227 00:11:19,630 --> 00:11:21,910 This is open to retail, you know, so they care a little bit 228 00:11:21,910 --> 00:11:23,350 more. The other thing I want to 229 00:11:23,350 --> 00:11:26,560 emphasize is. There's some amount of ambiguity 230 00:11:26,560 --> 00:11:29,560 here in terms of whether or not this type of structure is or is 231 00:11:29,560 --> 00:11:34,400 not a security, but broadly, many NFT projects now need to 232 00:11:34,400 --> 00:11:38,000 deal with the reality that they may be considered it. 233 00:11:38,410 --> 00:11:42,450 Security by the securities regulator and need to deal with 234 00:11:42,650 --> 00:11:45,210 either litigating that or otherwise dealing with the 235 00:11:45,210 --> 00:11:46,850 consequences. Well, that's going to do it for 236 00:11:46,850 --> 00:11:49,730 this episode everybody. If you want to support us, 237 00:11:49,730 --> 00:11:52,410 obviously there's doing the normal thing of like liking the 238 00:11:52,410 --> 00:11:55,370 video, rating it and reviewing it. 239 00:11:55,450 --> 00:11:58,690 But alternatively, we're putting out a new cast coin Cat 240 00:11:59,390 --> 00:12:01,350 election. It's going to be an NFT thing. 241 00:12:01,430 --> 00:12:05,190 It's really cool. Cost 10 cast coin each for every 242 00:12:05,350 --> 00:12:10,510 cast coin cat and what you get is unlimited access to the new 243 00:12:10,990 --> 00:12:13,910 Cast coin cat TV show. Anyway, there's a 10% royalty 244 00:12:13,910 --> 00:12:16,830 that gets kicked back to CCC. So we're going to be seeing a 245 00:12:16,830 --> 00:12:19,110 ton of money from that and we're kind of banking on that for the 246 00:12:19,110 --> 00:12:21,910 future of the show. Remember look it up on on Blur 247 00:12:21,910 --> 00:12:23,910 and on open C OK guys.