NFT: Did Yuga Labs Cheat Its Investors? The class action that could hurt

SEC in a dilemmaYuga Labs is one of the biggest successes in non-fungible tokens, the famous NFT. The collections of Bored Ape and CryptoPunks drive counters crazy and even arouse lust. However, after the fall in the crypto market and thus the price of these NFTs, some owners consider themselves wronged and wants to fight with the parent company. ONE Law office raised the issue and is considering a class action lawsuit. But the policeman of the American stock market (SEC) hesitates to position himself. Challenges and perspectives.

Investors potentially defrauded by Yuga Labs

Scott + Scott is an international law firm with offices in the US and Europe. Its teams specialize in consumer protection, shareholder rights or in securities disputes. On July 12, they published a call for testimony on their blog about possibly considering one class action against Yuga Labs.

The company hits hard on the American startup, and the words chosen are explicit. Here is an excerpt:

“Yuga Labs inappropriately encouraged the community to buy Bored Ape Yacht Club and the APE token associated with the project. (…) Promoters and celebrities have been used to inflate the price to unsuspecting investors. In the end, retail investors were left with tokens that fell more than 87% compared to the inflated price on April 28, 2022. »

It’s actually not just about NFT but also tokens MONKEY. On the one hand, there would therefore be a society which promotes images and tokens, raising the price and reselling everything on the backs of a poor community of buyers gullible. The known Pump and dump, a classic move in crypto. But the situation is far from that simple.

First of all, it is not Yuga Labs which decided to issue tokens. Rather, it is the DAO, that is, the autonomous organization of the owners of NFT. It is therefore difficult to accuse him. Also regarding this Pump and Dump charge, no one left the project with the box. The price of the token only followed the global decline in the markets. It will therefore be difficult to prove something along those lines. But the biggest problem in this case will be convincing DRY that she must intervene.

Bored Ape manager spits on people complaining after ‘buying the top’ – Source: Twitter

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But the reality is much more complicated for the SEC

Actually, what is an NFT? If it is a digital artwork, the SEC has no authority over it. Brian Fyrea law professor at the University of Kentucky, explains why:

“I see very little chance that the SEC will step into this and … characterize this [les NFT] as a security. (…) I think they will resist tooth and nail. (…) Because that would open a Pandora’s box for them and force them to regulate all sorts of other things that they don’t want to regulate. »

Indeed, the SEC has no desire for it regulate the art market and don’t plan to start with NFTs! If you buy a painting hoping to make a capital gain, will you file a complaint if the price of the painter drops? On the NFT side, there isn’t really a chance to see any procedure successful. And on the side of the APE tokens, we are also going in circles. Brian Fyre continues:

“The strange thing about it is, how do you do insider trading unless you do it with something that’s an exchange-traded security?”

In short, to be able to sue Yuga Labsshould SEC first position about the very nature of tokens MONKEY and perhaps NFT. And decide to include them in the security category, which it has refused to do for years. It is more likely that the SEC “press the key » and use expressions like “electronic fraud and money laundering » to characterize the facts. But one day it will be necessary to build a legislative framework for its unidentified financial objects, because that fashion seems not ready to pass.

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