Yuga Labs, founder of the Bored Ape Yacht Club NFT collection, is being probed by the U.S. Securities and Exchange Commission as to whether the nonfungible tokens are considered unregistered securities.
The agency is looking at whether Yuga Labs broke a federal law by issuing NFTs that act similar to stocks, and is also investigating the distribution of an Ethereum-based ApeCoin token that launched this year, according to unnamed sources that spoke to Bloomberg.
“I think the gist of it is that if they don’t register the offerings then they avoid SEC oversight [and] compliance. Basically, they are trying to make offerings that aren’t regulated,” Mike Kondoudis, a trademark attorney that specializes in NFTs, told MarketWatch.
The Bored Ape Yacht Club, which surpassed $1 billion in sales on OpenSea in January, is one of the most popular NFT collections, with holders like Jimmy Fallon, Paris Hilton, and Eminem.
At this time, Yuga Labs has not been accused of any wrongdoing. Yuga Labs did not respond to request for comment from MarketWatch. The SEC declined to comment.
Earlier this year, SEC Chair Gary Gensler he would focus on crypto to ensure platforms, stablecoins, and tokens adhere to regulations.
“The fact is, most crypto tokens involve a group of entrepreneurs raising money from the public in anticipation of profits — the hallmark of an investment contract or a security under our jurisdiction,” he said in April. “Some, probably only a few, are like digital gold; they may not be securities. Even fewer, if any, are actually operating like money. When a new technology comes along, our existing laws don’t just go away.”
In recent years, the SEC has investigated dozens of cases in which digital asset firms failed to register offerings. In February, BlockFi paid a $50 million penalty and ceased its unregistered offers and sales.