Judge tosses lawsuit against Yuga Labs over failure to satisfy Howey test

The plaintiffs failed to show how Bored Ape Yacht Club and other NFTs represent investment contracts under the SEC's 3-pronged Howey Test.

A US judge has dismissed an investor lawsuit against Web3 company Yuga Labs, ruling that the case failed to show non-fungible tokens (NFTs) meet the legal definition of securities.

Judge Fernando M. Olguin ruled the plaintiffs did not demonstrate how Bored Ape Yacht Club (BAYC), ApeCoin (APE) or other NFTs sold by Yuga satisfied the three conditions of the Howey test, a standard used by the Securities and Exchange Commission (SEC) to determine whether a transaction qualifies as an investment contract. The lawsuit was originally filed in 2022.

Yuba Labs marketed its NFTs as digital collectibles with membership perks to an exclusive club, making them consumables rather than investment contracts, Olguin said. He wrote:

The judge also said the plaintiffs failed to show that the Bored Ape Yacht Club and other NFT collections launched by Yuga are a “common enterprise” with the expectation of profits produced by others, adding legal precedent that most digital assets are not securities.

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