Yuga Labs Hit With Lawsuit Alleging NFTs Are Securities: Report

Yuga Labs hit with a lawsuit alleging that the Bored Ape Yacht Club NFT and the Apecoin are basically securities but they didn’t deliver on the promised returns so it seems that the company is finding itself on the other end of the courtroom let’s read more in today’s cryptocurrency latest news.

Last month, Yuga Labs as the $4 billion company behind the Bored Ape Yacht Club NFT, generated headlines by suing an artist for trademark infringement. However, right now, it seems that the company is on the other side of the courtroom. Law company Scott+Scott is organizing a class action lawsuit against Yuga Labs according to the company’s announcement and the lawsuit alleged that Yuga falsely promoted Bored Ape NFTs as security with guaranteed returns but in reality, they crashed in value.

a class action lawsuit against yuga labs has been initiated https://t.co/IfW5YsZvvn i imagine the first of many

— RYDER-RIPPS.ETH 🔜 (@ryder_ripps) July 24, 2022

The case’s plaintiffs haven’t yet filed an official complaint in federal court but the law company is in the preliminary stage of seeking plaintiffs that suffer losses in association with the purchase of the Yuga Labs NFT and the Apecoin from April to June. Yuga Labs hit a corner now as a lawsuit is heading its way and once filed, the court’s determination as to whether NFTs are securities, similar to a share in a company, has yet to be determined. If a court finds the BAYC NFT to be securities then Yuga Labs likely failed to make the needed disclosure and registration obligations that come with offering securities. The professor of Law at the University of Kentucky Brian Fyre added:

“I see very, very, very little likelihood that the SEC is going to want to step in there and … characterize that [Bored Ape NFT collection] as a security. I think they’re going to resist that tooth and nail, because that would open up a huge can of worms for them and force them to regulate all manner of other things that they don’t want to be regulating.”

The Securities and Exchange Commission so far refrained from labeling any NFT as security which has something to do with the fact that such a move can bring the art market under the sEC purview:

“I don’t really get the sense the SEC knows what it wants to do yet. And in fact, in some ways, I fear that they don’t know what’s going on.”

Technically whether any financial offering constitutes a security is determined by the Howey Test which is a four-prong evaluation established by the Supreme Court. In reality, however, things are not always so black and white. Fyre added:

“You know when something is a security? When the SEC decides it wants to regulate it—then it becomes a security. The real question is, does the SEC want to regulate this particular market? And the reality is, the SEC does not want to regulate the art market.”

The potential class action suit against Yuga will allege that customers purchased an artwork and expected them to increase in value beucase of the artist’s reputation.