Welcome back, everyone. I am Cass Piancy.
I'm joined, as usual, by my partner in crime.
We've already recorded one today.
I'm not going to play pretend and say I haven't asked you how
you're doing. You're doing good.
I'm doing good. We're going to be talking about
Nft's and whether or not their securities or at least whether
or not the SEC thinks their securities, when they think
their securities and why they think they might be securities,
right. And the reason this got brought
into everyone's sort of line of sight is because an NFT
collection called Stoner Cats that had been started or at
least Co founded by Mila Kunis and I think Ashton Kutcher was
in on that as well. I'm not.
I don't remember. I think Mila Kunis was the face
of it. But I think they're both
involved. And some other cocreators
created this thing called Stoner cats and now Stoner Cats was
this collection of images of what it sounds like.
Stoned cats and cool haha super super awesome weed and cats.
Very funny. And they decided they were going
to do a show, a web series based on this.
And they went through the documents.
Actually they they promised some pretty specific things,
including that they were going to do at least one episode for
three seasons, something like that.
Obviously they they didn't do that.
And part of the issue appears to be that the way these NFT's
work, and many NFT's for that matter, is that they offered
royalties to the initial founders and creators of these
NFT's. What that entails is that every
time someone buys one of these Nft's, they get like a 2.5%
kickback on that sale, which doesn't sound like much right
out the gate. But considering volume and all
this other stuff, you end up going like, oh, they made like a
half $1,000,000 in royalty like that, which it's a lot of money.
They also sold out of all of their Nft's when they put them
on the market. Whether or not they bought a
bunch of those I think is up for debate.
But basically the SEC said, hey, you guys are doing these
royalties on these Nft's. This is a security.
And to be clear, the people who did this said, Oh no, OK, well
we're done. You win.
We're not going to admit fault. We're not going to admit guilt
here. You guys can just take some
money, we'll pay the fine and we'll stop doing the sonar cat.
For what it's worth, I don't think you can actually buy them
anywhere right now. Maybe it's just because there's
none up for sale. After the SEC took this action,
the floor price increased 250%. It's still up 175% since before
the SEC action. And the volume went up, I think
almost 3000%. So everyone started buying it
and trading it and moving them around as soon as this SEC
action was was pushed out. I think this kind of SEC action
is similar in my mind to the EOS action that took place.
In case anyone is unfamiliar with EOS, this was a Brock
Pierce and Daniel Larimer project from years ago that was
going to change the financial system and raised $4 billion
from their ICO and then got fined by the SECI believe it was
$24 million. Who gives this shit?
No one cares about that 24 million, $1,000,000 fine when
you've raised billions of dollars.
And I think everybody understood that when it happened.
And to me this feels kind of similar, right?
So these guys raised, I believe it's something like 8 to
$9,000,000 including these royalties that they got and they
were fined, I don't know, a few million.
They made a profit for sure. They profited on this 100% sure.
And what they're getting out of it, ultimately, is that they
don't have to fight the SEC now. They don't have to pay legal
fees, and the SEC gets, oh, look, see, they're not willing
to fight us on this. So this means NFT's are
security. That's not the full story,
Bennett. Why don't you jump in here now?
What's interesting, so Stoner Katz is the second NFT case that
the SEC pursued. Like a week or two weeks before
they pursued Stoner Katz, they went after Impact Theory, which
was a smaller NFT project, less illustrious names involved.
And the creators of that NFT project kept telling their
investors. That they could get tremendous
value and that they were going to make sure that we do
something. That by any reasonable standard,
people get a crushing, hilarious amount of value.
And they even told these people buying their NFT's that these
NFT's were the mechanism by which communities will be able
to capture economic value from the growth of the company they
support. This one again settled with the
SEC and may more clearly be a security than Stoner cats.
And I think this is what kind of gets interesting here is.
Even in the impact theory case I just discussed, there were two
SEC commissioners who disagreed. Commissioners Pierce and Oyeta
did not support this and wrote their own digression.
And they highlighted that the SEC does not routinely bring
enforcement actions against people that sell watches,
paintings, or collectibles, along with vague promises to
build the brand and increase the resale value.
And what I thought was interesting, and what you and I
had a brief conversation about, is Preston Byrne, who we've had
on the podcast before, wrote a blog post taking a look at these
two cases. In his stance was basically that
the impact Theory one when I just discussed did seem more
clearly like a security in the way it was marketed, in the way
it was sold, and in the expectations investors
reasonably had. But he thought that the Stoner
Katz one was less clearly a violation of securities law.
Peyerson Ojeda again highlighted that this was an example of fan
crowdfunding, and Preston pointed towards how this was not
presented in that same. Way to purchasers.
And so I think Stoner Cats is 1 where they kind of wanted to go
after it because there were so many celebrities involved.
Mila Kunis was involved, as you mentioned, Ashton Kutcher was an
actor, Chris Rock was an actor. There were names involved here
and you want to discourage that caliber of name from doing this
type of projects. You go for a ticky tacky
settlement. But more broadly, what we're
looking at in both these two cases is that making your badly
formed project in which you hope to return value to people who
give you money and NFT instead of some other form of token does
not mean you'll avoid the Sec's attention, right.
And and so I think a big part of this has been the royalty aspect
the SEC has been honing in on. And I want to be clear here for
everyone because I think it's, it's a pretty important
distinction in my mind and we'll see.
I don't know if this will actually play out in court.
It might be that what I'm saying is totally off, off key and
wrong again. We are not lawyers. 2 Industries
that instantly come to mind when when I think of royalty, and
that is TV and movies and music, right.
In those two industries, royalties play a pretty big
role. We're watching a WGA strike, a
Writers Guild of America strike go on right now, particularly
because of royalties. The writers can't get royalties
on streaming anymore because these streaming services don't
offer the market data to even give them any of these
royalties, right? But this has been livelihoods
for decades for actors, writers, producers, whatever they they
all have been able to make money on these royalties forever.
There's a fair argument to be had that if your NFT is a TV
like thing, which I guess you could argue Stoner Katz was that
that the royalties in a sense makes sense.
I think that you need to do more probably than seven episodes.
I don't know. It would be up for debate.
I don't know. I don't know where that would,
where that would come in. But the second one that I want
to talk about is musicians where like again, record sales indeed
do give you royalties for the rest of your career if you have
the rights to the songs and the and and all of that.
And I know someone on that I follow on Twitter who actually I
I like a lot of the songs that he puts out there.
Jonathan Mann, I follow him. I find a lot of his music
entertaining. It's silly and he he turns a lot
of it into NFT's. He does royalties as well for
that. And I I get it.
I actually get that. I'm like Oh well that makes
sense. Counter to this is the sale of
art pieces is the sale of painting.
If I buy a painting from a painter, you know what happens
when I resell that painting, whether I resell it for a profit
or a loss. Do you?
Do you want to guess how much of the money I make on that resale?
The painter gets 00, They do not receive anything for it.
Collectibles. You want to talk about Pokémon
cards. How much does Namco get?
When I resell a Pokémon card 0, sure, they don't get anything.
So the royalties in that aspect, I do understand why they're
trying to say they're a security.
It's a dividend. And Preston highlights, per this
in the blog post. And like, imagine I paint a
picture and there's someone who wants to buy it for $10,000.
And I say, what if instead I sell it for you for $1000 and
10% of any of whatever you end up selling it for in the future,
right? That doesn't make the painting
itself a security right. And I think how many of those
agreements exist, I would love to know, because that is not a
common agreement. What is?
The answer is probably non zero, right?
Like well and often that's not how artist kickbacks work,
right? The way it generally works is an
artist sells some pieces to a collector at a lower price and
then one like. A Halo piece at a higher price,
which then revalues the entire collection.
So then the collector is able to make the money on that and the
artist then able to sell future price pieces at a higher price.
Not that that's a good change in terms of that arrangement in the
way I describe. Make it necessarily a security
The art market is bred for money laundering and tax evasion.
Like that's that's what the art. Market literally just described
market manipulation. That's what I just 100.
It's just not illegal because it's a collectibles market.
And the tax, the tax shit, donating it to museums, doing
all all sorts of weird scammy shit in the art market.
I'm not trying to deny that at all.
But if we're going to try to make kind of strict lines in the
sand about what a security is, I do want to say that when you're
getting kickbacks on every sale of a painting, that sounds so
much more like a dividend to me and a securities offering than
it does the way a normal art market works.
And royalties don't sound that way to me.
They really don't right it. It's a dividend, but it's not.
It's not. It's basically saying like okay,
you did this work in this thing years ago, and if you have to
repay a whole team, because it's not, it's not an individual
taking full credit for it. It's writers, actors, producers,
directors. It's the grip, it's the lighting
guy, It's it's every it's everybody.
And and the same for a musician as well.
Usually I think that's democratized a bit, but for a
musician as well, you're going into a studio, you're working
with a producer, you're working with a whole band, you're
working with all of these different people who hopefully
are going to be receiving some sort of monetary compensation
forever for the work that they've done for this thing.
And and again, the art market is not the same as that.
Maybe we see some changes in this, maybe it becomes less
regulated, maybe they or they regulate the royalties aspects
of these industries further. I don't know, but I'm trying to
explain there is there is a difference between these
industries in the real world. Sure.
I think kind of just to put a cap on this, there's two things
I want to kind of. Accentuate Stonercats to me
seems like the SEC trying to make a case, like we said,
because there's these names involved and they want to
discourage that kind of thing. I think the art market gets away
with a lot because everyone involved is probably like an
accredited investor, right? The Sec's rules, they're already
kind of loose, so they're not, they don't really care.
This is open to retail, you know, so they care a little bit
more. The other thing I want to
emphasize is. There's some amount of ambiguity
here in terms of whether or not this type of structure is or is
not a security, but broadly, many NFT projects now need to
deal with the reality that they may be considered it.
Security by the securities regulator and need to deal with
either litigating that or otherwise dealing with the
consequences. Well, that's going to do it for
this episode everybody. If you want to support us,
obviously there's doing the normal thing of like liking the
video, rating it and reviewing it.
But alternatively, we're putting out a new cast coin Cat
election. It's going to be an NFT thing.
It's really cool. Cost 10 cast coin each for every
cast coin cat and what you get is unlimited access to the new
Cast coin cat TV show. Anyway, there's a 10% royalty
that gets kicked back to CCC. So we're going to be seeing a
ton of money from that and we're kind of banking on that for the
future of the show. Remember look it up on on Blur
and on open C OK guys.