A US judge has dismissed an investor lawsuit against Web3 company Yuga Labs, ruling that the case failed to show non-fungible tokens (NFTs) meet the legal definition of securities.
Judge Fernando M. Olguin ruled the plaintiffs did not demonstrate how Bored Ape Yacht Club (BAYC), ApeCoin (APE) or other NFTs sold by Yuga satisfied the three conditions of the Howey test, a standard used by the Securities and Exchange Commission (SEC) to determine whether a transaction qualifies as an investment contract. The lawsuit was originally filed in 2022.
Yuba Labs marketed its NFTs as digital collectibles with membership perks to an exclusive club, making them consumables rather than investment contracts, Olguin said. He wrote:
“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.”
The judge also said the plaintiffs failed to show that the Bored Ape Yacht Club and other NFT collections launched by Yuga are a “common enterprise” with the expectation of profits produced by others, adding legal precedent that most digital assets are not securities.
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No common enterprise with the explicit expectation of profit
The NFTs, which trade on public blockchain networks, did not establish an ongoing and dependent financial link between the purchaser and Yuga Labs, and do not qualify as a “common enterprise” under the Howey Test, Olguin said.
Investors who purchased NFTs from the company paid a fee to Yuga that was independent of the NFT prices, Consensys attorney Bill Hughes wrote on X.
Finally, Olguin ruled that Yuga Labs did not make explicit promises of profit to prospective NFT buyers and that the roadmap for the project did not satisfy the conditions under the Howey test of expectation of profit.
“Statements about a product’s inherent or intrinsic value are not necessarily statements about profit,” Olguin said.
“Statements about NFT prices and trade volumes are a somewhat closer call, but even then, these statements by themselves fail to establish an expectation of profit,” he added.
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