Yuga Labs is one of the most successful companies in the NFT sector, owning the rights to such mammoth collections as the Bored Ape Yacht Club and the Mutant Ape Yacht Club. Over the course of its existence, it has seen hundreds of millions of dollars in sales and global recognition.
Now, however, Yuga Labs might be the subject of an investigation by the Securities and Exchange Commission (SEC). This is according to an October 11, 2022 report from Bloomberg. Citing sources close to the matter, the report suggests that the SEC is investigating Yuga Labs and its assets to determine whether or not they qualify as securities in the vein of stocks.
Yuga Labs Under Scrutiny
The question of whether or not blockchain-based assets are securities is a long-running one. Cryptocurrencies were subject to the same debate for years and now, NFTs are as well. In fact, the person at the centre of the ongoing NFT insider trading trial is seeking to have his charges dropped on the basis that insider trading only applies to securities and that NFTs are not securities.
This is clearly a line of questioning that the SEC is looking to follow as the source says it is looking into the entire NFT sector. More specifically, it is looking to determine if the sale of NFTs and some fractional NFTs constitutes the sale of unregistered securities. The NFT and digital asset market are notoriously underregulated compared to more ‘traditional’ assets and the implications of this investigation could be massive.
If NFTs are considered to be securities in the same way that stocks are, it could open up the floodgates for a lot of legal drama. Would Yuga Labs be deemed as selling unregistered securities? Because if so, the same could be said for thousands of NFT projects around the world. Would they face prosecution? What happens to the case of the ex-OpenSea employee accused of NFT insider trading?
These are all questions that NFT lovers have been pondering ever since the story broke.
Where Do NFT Projects Go Next?
While a spokesperson for the SEC refused to confirm or deny the rumours, Yuga Labs has put out a statement. Speaking to CoinTelegraph, a spokesperson for the company said, “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.”
In actuality, all we can do is wait and see if this investigation yields any results. If somehow NFTs are found to be securities then a long legal process will begin to develop a framework to accommodate them and companies like Yuga Labs will either be facing regulatory action or will have to formally register as securities operators.
If they are not, then the industry may continue as usual.