Last month, Yuga Labs, the $4 billion company behind the popular NFT collection Bored Ape Yacht Club (BAYC), caused a stir by suing the person who accused BAYC of racism. Now, Yuga Labs is about to find itself on the other side of the Court.
Law firm Scott+Scott is currently holding a class action lawsuit against Yuga Labs. The case will allege that Yuga falsely advertised NFT BAYC and ApeCoin as guaranteed profitable securities, but, in fact, they have plummeted in value over the past three months.
i predict yuga holders will join actions like these to recover the funds they were swindled out of.. unless of course they hate money? 🤷♂️
— RYDER-RIPPS.ETH 🔜 (@ryder_ripps) July 24, 2022
The plaintiffs in the case have yet to file a formal complaint in federal court. Even so, Scott+Scott is still in the preliminary stages of finding a plaintiff who suffered losses related to the purchase of NFT and Apecoin backed by Yuga Labs from April to June 2022. The company did not immediately respond to a request for comment on this story.
In fact, the US Securities and Exchange Commission (SEC) has so far aimed to investigate and include the NFT within the definition of security. Therefore, the class action lawsuit against Yuga Labs will likely be the traction to help the SEC expand its "target" more into the field.
Because Scott+Scott affirms that Yuga Labs has told customers when buying NFT BAYC that they will achieve specific profits because they can increase value based on the reputation of famous artists. Therefore, if the court finds that Yuga Labs is operating under such a model, it will not be too difficult for the SEC to start regulating the sale of NFTs by the company and many similar platforms.
Although the federal government mainly restricts labeling NFTs as securities, this situation seems to be gradually receding. Last month, the US Department of Justice charged a former OpenSea executive with insider trading, alleging that he made transactions that were informed in advance by sources inside the collection. It was alleged that he was told which NFT files would be featured on the OpenSea homepage.
Overall, however, classifying Yuga Labs NFT collections as securities can be an uphill and complicated battle as NFTs are a whole new field, and the SEC is just getting started. Mining in recent times has been difficult; besides, the barrier is that there is still no precise legal regulation around the field. But the lawsuit will also target ApeCoin, and argue that Apecoin as a security would be more viable.
ApeCoin (APE) is a token launched by Yuga Labs in March 2022 that gives token holders the ability to vote on governance proposals of ApeCoin DAO – a decentralized autonomous organization that makes decisions related to the BAYC ecosystem.
The value of APE tends to fluctuate according to the development of BAYC and Yuga Labs. Commenting on this issue, University of Kentucky law professor Brian Fyre said:
"A token like ApeCoin would give the SEC more advantages, I am sure the SEC could see APE as a share in a business to pursue the conclusion that the token is a security."