A U.S. federal judge has dismissed a lawsuit filed against Yuga Labs, the company behind the popular Bored Ape Yacht Club (BAYC) NFTs, ruling that the plaintiffs failed to prove the tokens meet the legal definition of securities under the Howey Test.
The lawsuit, originally filed in 2022, claimed that BAYC NFTs, ApeCoin (APE), and other digital assets issued by Yuga Labs were marketed as investment opportunities, thus falling under the purview of U.S. securities laws.
However, Judge Fernando M. Olguin ruled that the plaintiffs could not demonstrate how these NFTs satisfied the three prongs of the Howey Test, which the SEC uses to define investment contracts.
Why the Lawsuit Failed
Judge Olguin explained that Yuga Labs marketed NFTs as digital collectibles with membership perks, giving them a consumptive value rather than treating them as investment vehicles.
“The fact that defendants promised that NFTs would confer future, as opposed to immediate, consumptive benefits does not alone transmute those benefits from consumptive to investment-like in nature,” Olguin wrote.
Key reasons for dismissal included:
- No common enterprise: Plaintiffs failed to prove that NFT holders shared a dependent financial link with Yuga Labs.
- No explicit expectation of profit: Yuga did not guarantee profits, and roadmap statements did not constitute promises of financial gain.
- Independent pricing: Buyers paid a fee to Yuga independent of secondary market NFT prices.
Legal Precedent for NFTs
This ruling adds legal weight to the argument that NFTs are not inherently securities, since their value is tied more to collectibility, membership perks, and cultural significance rather than guaranteed profits.
Consensys attorney Bill Hughes commented on X (formerly Twitter) that the court correctly identified that NFT purchases lacked an ongoing profit-sharing structure with the issuer.
What It Means for the NFT Industry
The decision may provide some relief to the NFT sector, which has been under scrutiny from regulators questioning whether certain digital assets qualify as securities.
By clarifying that statements about value or trade volumes do not equal profit guarantees, the court’s ruling reinforces the distinction between digital collectibles and investment contracts.
The dismissal of the lawsuit against Yuga Labs sets a significant precedent in ongoing debates around NFT regulation. While the SEC continues to explore the boundaries of securities law in crypto, this case highlights that NFT projects marketed primarily as collectibles with utility may not fall under securities laws.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.