Bored Ape NFTs Not Securities, Judge Rules in Key Lawsuit Dismissal

A US federal judge has dismissed a high-profile lawsuit against Yuga Labs, ruling that Bored Ape Yacht Club (BAYC) NFTs and ApeCoin are not unregistered securities. Judge Fernando M. Olguin found that the plaintiffs failed to satisfy all three prongs of the Howey Test, a legal standard for determining an investment contract. The court determined that buyers were not shown to have a shared enterprise tied to Yuga’s efforts, nor were they promised returns primarily from Yuga’s work. Instead, many BAYC sales were framed as collectibles and membership benefits.

Plaintiffs had argued that market discussions about trading and rare traits created profit expectations, but the court deemed these claims too insubstantial to convert a collectible into a security. The ruling emphasized that purchasers’ fortunes were not made to depend directly on Yuga’s future business actions as required by securities law. This decision offers significant reassurance to NFT holders and marketplaces, as a major legal challenge has been dismissed.

However, the ruling is not a universal safe harbor for all NFTs. Legal experts caution that the space remains under close regulatory scrutiny, with the SEC taking enforcement steps in other NFT cases, particularly those involving revenue sharing or paid promotional aspects. Yuga Labs itself has faced other legal battles, including an overturned trademark judgment, highlighting the fact that courts evaluate each case on its specific facts. Projects that explicitly promise revenue sharing, profit splits, or are primarily marketed as investments could still face different outcomes if challenged, underscoring the nuanced and evolving legal landscape for digital assets.

(Source: https://bitcoinist.com/bored-ape-nfts-win-big-court-says-theyre-not-securities/)