Bored Ape NFTs fall outside securities law, US judge rules

A California-based federal judge, Fernando M. Olguin, has reportedly dismissed a class-action lawsuit against Yuga Labs, the blockchain technology company that created the Bored Ape Yacht Club (BAYC) NFTs collection. The dismissal followed the judge’s ruling that these digital collectibles did not qualify as securities.

According to him, the Bored Ape NFTs did not meet several requirements to determine whether financial transactions involving them are considered securities. Judge Olguin was appointed by former US President Barack Obama in 2013.

Judge Olguin ruled that Bored Ape NFTs are not securities 

In his Thursday, October 2 ruling, Olguin pointed out that Bored Ape NFTs differed from other NFT collections previously recognized as securities. Examples of these NFTs include Dapper Labs’ NBA Top Shot NFTs and DraftKings NFTs.

He highlighted this difference mainly because investors prefer to purchase Bored Apes from third-party marketplaces, such as OpenSea and Coinbase, rather than acquiring them directly from the NFT issuer’s marketplace.

The federal judge had also discovered that Bored Ape NFTs did not meet the necessary “common enterprise” aspect of the test used to establish an asset as a security. 

He explained that the plaintiffs did not demonstrate any important relationship between the alleged securities and the proprietary ‘ecosystem’ that supported the case of Dapper Labs and DraftKings. This, therefore, led him to conclude that they had not clearly illustrated a horizontal connection. 

Another thing that the judge uncovered was that Yuga Labs charges a royalty fee to creators on every sale of Bored Apes. This indicated a difference between the fortunes of the plaintiffs and those of the defendants.

This meant that the defendants could still gain profit even if the plaintiffs sold their own NFTs at a loss. These royalties are one of the primary sources of income for NFT creators. To break this down, they earn a built-in fee, mostly over 10%, each time their collectible tokens are sold or traded.

Notably, these arguments raised by the judge differ significantly from those employed by the SEC during the Biden administration. Based on those from the SEC, the creator royalties suggested that an asset is a security, as it was designed to be resold by its creators.

The SEC ends their lengthy investigation into the NFTs space amid Trump’s pro-crypto stance 

Yuga Labs has been fighting the federal government for several years about whether NFTs are securities, largely because it is one of the biggest players in this space. While Bored Ape NFTs have cooled off and depreciated in value and cultural significance, they have still racked up a remarkable $7.2 billion in trading volume since their launch in 2021. 

Concerning the situation, the company mentioned earlier this year that the SEC had concluded its long investigation into its operations as part of the Trump administration’s pro-crypto stance. The SEC also ended a similar investigation into NFT marketplace OpenSea.

It is one thing for the commission to opt not to pursue enforcement against certain NFT projects, but it is a different situation when a federal court issues a clear ruling, as it did in Yuga’s case this week.

Despite this significant ruling, Bored Ape NFTs look largely the same. The floor price for an NFT in the collection —the lowest price that NFTs sell for —dropped by 2% over the last 24 hours to $37,337. This represents a 90% decrease compared to the highest price of $369,900 reached in April 2022. 

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