The U.S. Securities and Exchange Commission(SEC) investigates Bored Ape Yacht Club creator Yuga Labs over whether the sales of digital assets such as its NFTs and ApeCoin tokens are unregistered securities or not.
According to a Bloomberg report, the SEC hasn’t issued a statement on the subject because this is a private probe.
The source who has knowledge of the investigation has wanted to remain anonymous. The question, according to the source, is whether Yuga’s NFTs resemble stocks more closely and should adhere to the same security disclosure guidelines.
Whether NFTs are securities is the crucial legal issue at the heart of the investigation; the SEC has been apparently looking into this issue since March.
The distribution of ApeCoin, the utility tokens within the APE ecosystem, to holders of BAYC, MAYC, and BAKC members is another matter that the SEC is allegedly examining.
The “unaffiliated” ApeCoin DAO, which denies any official link with Yuga Labs, debuted ApeCoin in March 2022.
Yuga Labs’ cooperation with the SEC’s investigation was confirmed by a spokesperson for the company.
The spokesperson noted “It’s well-known that policymakers and regulators have sought to learn more about the novel world of Web3. We hope to partner with the rest of the industry and regulators to define and shape the burgeoning ecosystem. As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.”
NFTs are currently not regarded as securities, so the SEC does not have jurisdiction over them. But SEC Chairman Gary Gensler is optimistic about bringing it under the law so it comes as no surprise that he’s going after the biggest blue-chip NFT collection in the industry.
Any asset must pass what is known as The Howey Test in order to be regarded as a security. There are four requirements in this 1948 legal precedent. The asset must be:- An investment of money – In a common enterprise- With the expectation of profit- To be derived from the future efforts of others.
Do NFTs pass this test? Since there is no precedent for how it will be applied in court, we truly don’t know yet.
Recently, the SEC charged Kim Kardashian for touting crypto asset security offered and sold by Ethereum Max. Last month, the SEC claimed that the entire Ethereum network falls under the US government’s purview.
It appears that the SEC is ready to act swiftly and effectively in its efforts to establish guidelines for a number of areas of the cryptocurrency industry after years of dithering.
