Judge Dismisses Yuga Labs Lawsuit
Court dismisses investor lawsuit, says Yuga Labs’ NFTs fail to meet Howey test
A US federal judge has thrown out a lawsuit accusing Yuga Labs, the creator of the Bored Ape Yacht Club (BAYC), of selling unregistered securities, ruling that its NFTs do not meet the legal definition of an investment contract.
Judge Fernando M. Olguin concluded that the plaintiffs failed to prove that Yuga’s NFTs, including BAYC and ApeCoin, satisfied the criteria of the Howey test — the key framework used by the SEC to determine if a transaction qualifies as a security. The ruling marks a major victory for the Web3 firm and could influence future cases involving NFTs.
The lawsuit, filed in 2022, alleged that Yuga Labs misled investors by promoting its digital collectibles as profit-making opportunities. However, the court found that Yuga marketed its NFTs as exclusive digital memberships with access to community perks, not as investment assets. “The fact that defendants promised future, as opposed to immediate, consumptive benefits does not alone transmute those benefits from consumptive to investment-like in nature,” Judge Olguin wrote.
The court also ruled that there was no “common enterprise” between Yuga and NFT holders — a crucial element under the Howey test. The judge noted that NFT buyers had no ongoing financial relationship with Yuga Labs and that purchasing the tokens did not depend on the company’s management for profit.
Olguin added that general statements about NFT prices or trading volumes do not automatically imply an expectation of profit. “Statements about a product’s inherent or intrinsic value are not necessarily statements about profit,” he said.
The decision reinforces growing legal precedent that most NFTs function as digital collectibles rather than securities, dealing another blow to attempts to regulate them under traditional investment laws.
