SEC vs. BAYC? The Legal Implications

October 20, 2022

By Sharan Kaur Phillora

Last week, an unnamed source told Bloomberg that the Securities and Exchange Commission is currently investigating whether the NFTs sold by Yuga Labs, the $5 billion company behind Bored Ape Yacht Club, violated security registration laws. The SEC did not deny the report.

Here’s what happened:

Several legal experts who spoke to Decrypt took the development as a clear sign that the SEC which has aggressively stepped up its approach to crypto regulation in recent months, is looking to assert its dominance over the NFT market. 

Across that spectrum of opinion, however, there was general consensus that if the SEC chose to extend its current investigation of Yug Labs to litigation, its effects would be seismic.

“The potential for regulatory enforcement motion is larger than I had anticipated, even with respect to NFT collections, the place every digital asset is exclusive,” Alfred Steiner, an artist and legal professional specializing in NFTs, told Decrypt. Steiner, at present, represents Ryder Ripps, a conceptual artist and provocateur who’s at present the goal of a Yuga Labs lawsuit over trademark infringement.

Different authorized consultants disagreed, nonetheless, and mentioned they’d been anticipating this escalation for a while. Other sources close to the matter, who wished not to be named, concurred that the SEC might very well be utilizing Yuga Labs as a pawn in a better sport supposed to stave off competing regulators together with the Commodities of Future’s Commission (CFTC), the Treasury Division, and the Judiciary. 

In the interim, though, as flashy NFT companies like Yuga have acquired massive amounts of capital, swathes of headlines, and loads of celebrity endorsements, it may now be too hard for the SEC to stay idle.

The bigger impact they see Yuga making on markets, the more likely they are to see it as something that they want to be regulating. The question isn’t whether BAYC is security. The only real question here is, what does the SEC want to regulate?

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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