The US Securities and Exchange Commission is looking into Yuga Labs Inc., the company that made the famous Bored Ape Yacht Club collection of NFTs, to see if its sales of digital assets break federal law.
The SEC is looking into whether some nonfungible tokens from a Miami-based company are more like stocks and should follow similar disclosure laws as stocks, based on a person who knows about the situation but declined to be identified because the investigation is private. The foremost regulator on Wall Street is also looking into how ApeCoin was given to people who owned Bored Ape Yacht Club and similar NFTs. The currency was made in part for web3, which is an idea for a decentralized internet based on blockchains.
Yuga hasn’t been accused of doing anything wrong, and just because the SEC is looking into the company doesn’t mean it will sue the company.
“It’s well-known that policymakers and regulators have sought to learn more about the novel world of web3. We hope to partner with the rest of the industry and regulators to define and shape the burgeoning ecosystem,” Yuga said in a statement to Bloomberg News. “As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.”
A representative for the SEC declined to say anything.
Gary Gensler, who is in charge of the SEC, is trying again with this investigation to make sure that the crypto market follows the rules. Gensler has said numerous times that almost all crypto assets should be regulated by the agency because they are like securities, which is how the Supreme Court defined securities in the 1940s. In the past few years, the regulator has brought dozens of cases against digital asset companies for not registering their offerings. In February, BlockFi Inc. was fined $50 million for not being registered.
Yuga Labs was started in 2021 and has become one of the most well-known crypto brands. Its cartoon monkey NFTs are a status symbol that people want to buy. Jimmy Fallon and Madonna are among the celebrities who have bought them, and they often sell for hundreds of thousands of dollars.
NFTs are digital assets which can be used to show who owns something like a painting or a piece of sports memorabilia. The tokens can also be used as proof of ownership that can’t be copied.
the SEC has been looking into the NFT market as a whole, such as the crypto exchanges where they trade. As part of this review, the SEC is looking into what are called “fractional non-financial assets.” These are assets that are broken up into small pieces that can be easily bought and sold.
The SEC is also looking into whether ApeCoin, which was given to some people who owned Bored Ape NFTs in March, is the same thing as a security. The people who own ApeCoin can have a say in how a decentralized autonomous organization, or DAO, is run. The idea was to let the Bored Ape community help shape the decentralized, blockchain-powered vision of the internet that venture capitalists often call “web3.” The Bored Ape DAO will use the blockchain to let people vote on how the community is run and to keep track of those votes.
The most important legal question is whether or not NFTs are considered securities by the agency. The Howey test, which arrives from a 1946 decision by the US Supreme Court, is used by the SEC to make a decision if something is a security. Under that framework, an asset usually falls under the agency’s responsibility when investors put money into a company so that the organization’s leaders can make money from their work.
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