Are NFTs Securities? SEC Begins Probe Into Yuga Labs

According to a report from Tuesday, the SEC launched a probe into Yuga Labs, the creators of the famous Bored Apes NFT collection (BAYC). The probe is investigating both the NFTs and Yuga’s native ApeCoins (APE).

SEC Launches a Probe of Yuga Labs

The US Securities and Exchange Commission has been undertaking a general probe of the NFT sector since early 2022. According to an unnamed source, the investigation is starting to zero in as the SEC started a probe of Yuga labs, the creators of the popular Bored Apes NFT collection.

The Commission is trying to determine whether the NFTs themselves can be considered securities, but is also probing Yuga Labs’ ApeCoins (APE). Yuga Labs launched APE coins as governance tokens in March and airdropped them to BAYC owners.

Currently, there is no precedent for treating NFTs as securities, but the SEC has been aggressively pursuing numerous other digital assets with the most famous actions targeting Binance, and Ripple Labs. It is important to note that an ongoing probe doesn’t necessarily mean Yuga will ultimately be accused of any wrongdoings.

While the outcome of the SEC’s probe is yet to be determined, the news of its existence immediately sent shockwaves. In the hours following the report’s release, the value of the APE token suffered a tremendous decline. The news was immediately followed by a steep drop from $5.15 to $4.72, and hours later the token is down 10% standing at $4.68.

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Why is the SEC Investigating NFTs?

The SEC’s Chair Gary Gensler has been very keen on regulating crypto ever since he took office. While criticism of the Commission’s actions has been piling up—with some likening it to a “shakedown authority” and others accusing it of stifling innovation—the watchdog has remained unyielding in its pursuits.

The SEC is currently relying on the Securities Act of 1933 and the associated Howey Test whenever judging whether digital assets fall under their jurisdiction. This approach has on the one hand led Genser to state most crypto assets fall under the Commissions authority—including the post-merge Ethereum—but on the other led to mounting resistance and calls for more modern legislation.

The Securities and Exchange Commission is also currently engaged in a trial with Ripple Labs—which might set a valid legal precedent on the future treatment of crypto. While the case has over its long history mostly gone in the SEC’s favor, the presiding judge recently made a surprising ruling in Ripple’s favor with regard to the important Hinman documents.

Do you think the SEC will find a way to classify NFTs as securities?  Let us know in the comments below.