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Sotheby’s sued over Bored Ape NFT sales

BAYC bored ape NFTs

A class action lawsuit against Yuga Labs has ensnared the Sotheby’s auction house. Yuga Labs is the creator of the Bored Ape Yacht Club (BAYC) NFT collection as well the ApeCoin crypto and Otherdeed NFTs that represent metaverse land. Last week Sotheby’s was added to the lawsuit originally filed in December 2022, alleging all of the Yuga’s sales involved securities and celebrities promoted unregistered securities. In addition to Sotheby’s, the lawsuit’s targets include adidas, MoonPay, Hollywood agent Guy Oseary, Justin Bieber, Paris Hilton and several other celebrities.

At the time of first filing of the lawsuit, Yuga Labs described the claims as “opportunistic and parasitic”.

Is the lawsuit opportunistic?

That viewpoint is not without merit. The revised lawsuit alleges that the first “scheme” was a “deceptive Sotheby’s auction” with the aim of creating an “air of legitimacy”. The implication is that Sotheby’s found this obscure NFT collection and promoted the hell out of it, which is not entirely true. In reality it works the other way around.

In order for Sotheby’s to get behind an NFT collection, or an art collection for that matter, it needs to have an existing high profile. And BAYC NFTs already had a floor price of around $75,000 before Sotheby’s got involved, which is publicly available information. There’s no question that the price continued to rocket afterwards, but so did the NFT market as a whole.

A second point is that NFTs are not generally considered to be securities, unless there’s an attempt to sell fractional amounts of an NFT, as SEC Commissioner Hester Peirce has previously highlighted. BAYC NFTs are closer to an art collection, which may very well be an investment, but that does not make them securities. However, the ApeCoin fungible crypto sales are likely to attract more scrutiny as potentially being securities, but much of the lawsuit focuses on the NFTs.

Many of the co-defendants are celebrities. “Defendants’ promotional campaign was wildly successful, generating billions of dollars in sales and re-sales,” the complaint states. “The manufactured celebrity endorsements and misleading promotions regarding the launch of an entire BAYC ecosystem were able to artificially increase the interest in and price of the Yuga Financial Products.”

Attempts to associate Yuga Labs, Sotheby’s with FTX

While the court case might have some fundamental flaws, the 220 pages include a huge volume of gossip and distraction. One of the allegations is that the Sotheby’s auction of the 101 BAYC NFTs went to a “traditional” buyer for $24 million, substantially above the indicative price. In a stroke of luck for the lawyers, it turns out that the actual buyer was very likely FTX.

“Sotheby’s representations that the undisclosed buyer was a “traditional” collector had misleadingly created the impression that the market for BAYC NFTs had crossed over to a mainstream audience.” the document states. “The Company and its founders likewise touted the Sotheby’s stamp of approval that the auction was above board. But the reality of the winning “bid” of the Sotheby’s auction exposes the falsity of those statements.”

They go on to allege that Yuga Labs and Sotheby’s knew that the buyer was FTX without providing any evidence. 

“Behind this scheme, Defendants Yuga and Sotheby’s were conspiring with FTX to manipulate the price of the BAYC NFT collection. The misleading promotions of the auction by the Company and Sotheby’s successfully induced additional purchases of the BAYC NFT collection. Moreover, this first deceptive scheme set the stage for Yuga to misleadingly offer and sell additional financial products by raising the profile of the Bored Ape brand with the public.”

Stepping back, even if the NFT claims might be questionable, two of the four lead claimants in the class action also bought the ApeCoin fungible tokens, which is the weaker link.

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