Yesterday, September 13, the US Securities and Exchange Commission (SEC) charged Stoner Cats 2 LLC with conducting an unregistered offering of crypto asset securities. This offering, in the form of non-fungible tokens (NFTs), raised approximately $8 million to fund an animated web series called Stoner Cats. The SEC’s latest action has generated criticism from Ripple’s Chief Legal Officer, Stuart Alderoty.

Alderoty did not hold back in voicing his dissatisfaction with the SEC’s actions, suggesting that this could be a mere “PR stunt” aimed at claiming an easy victory following recent courtroom losses. He expressed skepticism, stating, “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 experienced 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. These successes for Ripple and Grayscale have undermined the SEC’s regulatory policy, as the respective judges dismantled the regulator’s arguments.

In addition to criticizing the SEC, Alderoty emphasized Ripple’s determination to persist in its legal battle. Ripple’s President Monica Long asserted in a recent CNBC interview that they intend to fight the case all the way through. Ripple executives have even suggested taking the case to the Supreme Court, if necessary, believing that their chances of success increase as the case progresses up the judicial ladder.

Interestingly, dissent within the SEC itself has surfaced in response to the charging of Stoner Cats 2 LLC. Commissioners Hester M. Peirce and Mark T. Uyeda voiced their disagreement, highlighting the problematic application of the Howey investment contract analysis in this case. They argue that it lacks a meaningful limiting principle and could hinder creativity across various sectors.

The commissioners drew parallels, specifically discussing the similarities between the Stoner Cats NFTs and Star Wars collectibles from the 1970s. They posed a compelling question: Would the Star Wars collectibles, which essentially served as IOU certificates for future action figures, be considered investment contracts under the SEC’s current analysis?

Their statement underscores the potential consequences of the SEC’s actions. They caution that by treating NFTs as securities without clear guidelines, the agency risks stifling artists’ creativity due to legal uncertainties. The commissioners advocate for clearer guidelines that would enable artists and creators to explore NFTs as a means of supporting their work and engaging with their fan communities.

Furthermore, they emphasized that Stoner Cats NFT purchasers received exactly what they paid for—a unique image of a character, access to the animated series, and the excitement of joining a popular phenomenon. The commissioners believe that the SEC’s current strategy could discourage content creators from leveraging social networks for creation and distribution, further adding to the legal challenges faced by artists, writers, musicians, filmmakers, and other creators.

The SEC’s recent action against Stoner Cats 2 LLC, coupled with the dissenting statement within the agency, highlights the ongoing regulatory uncertainty in the crypto space. As Alderoty indicated, the SEC’s record in court raises doubts about the effectiveness of its regulatory approach. Litigation seems to be the current avenue for challenging and scrutinizing the SEC’s actions.

At the time of writing, XRP traded at $0.4812.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.