A U.S. District Court judge has rejected a lawsuit from investors targeting Yuga Labs, stating that there was insufficient evidence to classify non-fungible tokens (NFTs) as securities.
Judge Fernando M. Olguin determined that the plaintiffs could not establish that the Bored Ape Yacht Club (BAYC) or the ApeCoin (APE) NFTs fulfilled the criteria set out by the Howey Test, which is a benchmark used by the Securities and Exchange Commission (SEC) to evaluate whether transactions should be recognized as investment contracts. The complaint originated in 2022.
According to the judge, Yuga Labs presented its NFTs as digital collectibles offering exclusive club membership benefits, thus framing them as consumables rather than investment vehicles. He stated:
“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.”
Judge Olguin dismisses investor lawsuit against Yuga Labs.
This ruling communicated that the investors did not demonstrate how the Bored Ape Yacht Club and other collections constituted a “common enterprise” with a profit expectation driven by others, reinforcing that many digital assets do not fall under securities regulations.
The judge pointed out that the trading nature of NFTs on public blockchain networks does not create a solid financial interlinkage between buyers and Yuga Labs, thereby negating their classification as a “common enterprise” per the Howey Test. Investors’ fees were independent from the NFT values. Bill Hughes, attorney at Consensys, remarked on this ruling on social media.
Ultimately, the judge concluded that Yuga Labs did not explicitly promise profits to potential NFT buyers and that their project’s outline did not meet the Howey criteria for profit expectations.
“Statements about a product’s inherent or intrinsic value are not necessarily statements about profit,” he noted.
For further reading, check out the article on Gordon Goner’s health struggles and the third anniversary of Bored Apes.
