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A recent report from Bloomberg was published on October 11, 2022, that has gained much traction. It stated that BAYC creator Yuga Labs are getting investigated by the SEC. The news has created a massive wave having a ripple effect on the entire NFT industry. This includes several top NFT collections and marketplaces.
The investigation would verify whether the sales of BAYC NFTs and ApeCoin tokens comply with federal laws. However, they did not reveal the actual source and mentioned that the SEC probe is private. This was stated by a source familiar with the matter.
The involvement of the SEC in the NFT industry had been known to everyone since March 2022. This was when US regulators questioned whether digital assets are being used to raise money like traditional securities. Considering that, the SEC’s investigation into Yuga Labs actually seems like a part of the broader scrutiny of the entire NFT industry.
However, Yuga Labs remains unwavering about the inquiry and cooperates with SEC in their investigation. While speaking to the Cointelegraph, a spokesperson from Yuga Labs said that the policymakers and regulators are seeking to learn more about Web3 world to regulate the industry. To support that, they assured collaboration with the rest of the industry and regulators in shaping the Web3 ecosystem.
Meanwhile, Yuga Labs also announced a $1 million donation to support arts and education initiatives. The drive will be carried out in Miami, the birthplace of Yuga Labs and the BAYC collection. The announcement came to light on the same day the Bloomberg report was published, i.e., October 11. Claiming to be investing in the future of Miami, Yuga Labs is giving back to its city by helping out young talent.
SEC Is Also Looking Into ApeCoins
ApeCoin DAO, formed by the members connected to the Yuga Labs, is Ethereum-based governance and utility token. It launched and distributed the ApeCoins in March 2022. Having close ties with the creators of BAYC, ApeCoin is also getting investigated by the SEC.
Bloomberg reported that the SEC is scrutinizing the distribution of ApeCoin. The ApeCoins were disseminated to the holders of Bored Ape Kennel Club, and Mutant Ape & Bored Ape Yacht Club members. As per the ApeCoin website, out of the fixed 1 billion supply, around 62% of the coins were distributed to the APE community. The remaining 16% to Yuga Labs and charity, 14% to launch contributors, and 8% to the BAYC founders.
According to Coinmarketcap, ApeCoin was trading at an all-time high of over $23 at the end of April 2022. However, when the Bloomberg report was released in October, its price plunged to around $4 from $5 within 24 hours. As of October 19, the coin is trading at about $4.3, down by more than 20% from its all-time high value.
Legal Experts Saw This Coming
According to sources, multiple legal experts have already expected this investigation because the SEC has been gearing up toward crypto regulation in recent months. A law professor at the University of Kentucky, Brain Fyre, told the publication that he is not surprised and has anticipated this investigation for the last two years.
Fyre believes that SEC targeting BAYC creators makes the perfect sense considering it is a major brand in the industry. Numerous investors buying blue chip NFT collections like BAYC makes it look like buying stocks in a company. He further pointed out that the question is not about whether NFTs are securities; it is actually about what exactly the SEC is looking after to regulate.
Fyre further stated that if NFTs are treated as legal securities at the end of this investigation, it will not bring significant changes for the creators. This is because most of the disclosure information is already present on the blockchain.
Jeremy Goldman, an attorney with an NFT specialization, opined that it is sensible for SEC to go after projects that fit the framework of security. He also believes that besides BAYC, multiple other projects also appear like securities to SEC.
If SEC goes against Yuga Labs and wins the case, it would be a concern for the entire NFT industry. However, further updates regarding the investigation are required to remark on how this news will impact the NFT industry.
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