Yuga Labs – the team behind the popular Bored Ape Yacht Club (BAYC) NFT collection – is now under investigation by the Securities and Exchange Commission (SEC).
The commission is examining whether the company violated securities laws by issuing certain NFTs, or through their newly launched crypto token ApeCoin.
SEC Versus NFTs
A person unfamiliar with the matter told Bloomberg that the SEC seeks to find out whether some of the firm’s NFT more closely resemble stocks, and if they should follow the same disclosure rules. For now, Yuga has not been accused of any wrongdoing by the commission, and the probe does not imply an incoming lawsuit.
“It’s well-known that policymakers and regulators have sought to learn more about the novel world of web3,” Yuga told Bloomberg in a statement. “As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.”
Yuga’s BAYC collection is one of the most iconic and highly valued NFT collections available. Celebrities including Eminem and Justin Bieber have paid hundreds of thousands of dollars for some of its highly valued apes – which have drawn down substantially in price during the bear market.
NFTs gained popularity in 2021 as highly speculative collectible items, but are now evolving to serve other functions in areas like fundraising, gaming, and memberships. This highly versatile nature has left regulators confused about how to legally categorize them.
In her digital asset regulation bill, Senator Cynthia Lummis suggested that NFTs could be considered “ancillary assets,” if they are neither used as stores of value nor means of payment. However, the senator doesn’t believe the bill will be tabled until 2023.
On traditional, fungible tokens, SEC Chairman Gary Gensler is more confident, claiming that most crypto tokens are securities. As such Yuga is also being investigated for its issuance of ApeCoin – the governance and utility token of the Bored Ape ecosystem.
The SEC is already involved in probing the exchanges at which NFTs trade, as well as “fractional NFTs” – NFTs that can be broken into pieces, making them easier to trade.