A U.S. federal judge has dismissed a lawsuit brought against Web3 firm Yuga Labs, ruling that its flagship non-fungible tokens (NFTs), including the Bored Ape Yacht Club (BAYC), do not qualify as securities under U.S. law.
Judge Fernando M. Olguin, presiding in the Central District of California, determined that the plaintiffs failed to establish how Yuga Labs’ NFTs or its ApeCoin token satisfied the criteria of the Howey Test — the three-pronged standard used by the Securities and Exchange Commission (SEC) to classify investment contracts. The suit, filed in 2022, had sought to portray Yuga’s offerings as unregistered securities.
Olguin concluded that Yuga marketed its NFTs primarily as digital collectibles with club-related perks rather than financial investments.
“The fact that defendants promised that NFTs would confer future, as opposed to immediate, consumptive benefits does not alone transmute those benefits from consumptive to investment-like in nature,” the judge wrote.
Implications for the NFT Industry
The decision adds to a growing body of legal precedent distancing NFTs from being automatically categorized as securities, a key question looming over the digital collectibles industry. For now, projects like Yuga Labs’ BAYC may breathe easier knowing courts are reluctant to apply securities laws to NFTs absent clear promises of investment returns.
Still, regulatory scrutiny continues, as the SEC has yet to issue definitive guidance on NFTs, and lawsuits around token classification remain ongoing across the crypto industry.