Headline: Why is there a class action suit against Yuga Labs?


Body:  Oh boy, oh boy, oh boy, lawyers everywhere are about to go, well…er…um… APESPIT!!!  Here’s why.

In a nutshell…

In a nutshell, there are a whole lot of people who are, as a class, suing Yuga Labs for having “inappropriately induced” this group into buying their Bored Ape NFTs and the associated ApeCoin token.  Their claim is that Yuga Labs used famous promoters to artificially inflate the value of both the NFTs and the APE coin.  A further claim is made that Yuga Labs waved the prospect of huge returns in front of “unsuspecting investors” claiming a loss of more than 87% since the end of April 2022.  In an interesting twist, one community member brought p the point that Yuga didn’t create APE coin.   Rather, APE coin was started by a DAO, which was then adopted by Yuga Labs.  It will certainly be interesting to see the outcome of this fight.  When in court, the class will have to prove that Yuga Labs engaged in a “pump and dump” scheme where they artificially inflated prices.    This is often quite difficult to do.

Making their case even trickier, the class might  have to convince the jury that both product lines were sold as investment contracts which constitute unregistered securities.  These have to be registered with the SEC, in most cases.  For now, though, Scott & Scott face the arduous task of finding the entire list of potential plaintiffs.

Well, at least they all seem to agree…

Nope, not really.   The class is small when compared to the number of people who have purchased Bored Apes.  Many within the broader community feel that the class suing Yuga are essentially whining because they made their own bad financial decision.   One of these is Kevin Wu.    “Extremely ridiculous! Take responsibility for your own actions, people.”

Is this really a big deal, worthy of interest by the SEC?

It conceivably might be.   Even on the individual level, this might be worth considering.   Just one year ago, a Bored Ape sold for $3.4 Million USD.  Even now, the average price of a Bored Ape is over $115,000. “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,” said professor of law at the University of Kentucky Brian Fyre.

The Verdict

Once the case is filed, the court’s determination on whether NFTs are securities and their similarities to a company share would be a key factor to winning.  We have hit upon this topic in a previous blog post, but really, this is a very important question.  On one hand, because the different agencies of the Federal Government vie for larger portfolios (and budgetary allocations), I could see why the SEC would take the stance that  these are investment contracts.  As such, they need to be registered, and there are dozens of required disclosures that they have to tender to potential investors.   On the other hand, Law Professor Brian Frye opined differently.  “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,” said the professor.  He felt that if the NFTs were considered securities, then the SEC would be forced to regulate a lot of things that they don’t want to regulate. I think this makes sense.




Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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