SEC Investigating Yuga Labs Over Sale of Unregistered Securities

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  • The SEC is investigating Yuga Labs over a potential unregistered sale of securities
  • The “private” probe was exposed by Bloomberg yesterday from an inside source
  • This could be the latest attempt by the SEC to class NFTs as securities

Yuga Labs is under investigation by the Securities and Exchange Commission (SEC) over alleged sale of unregistered securities, further illustrating how the agency could view NFTs. The SEC is looking at whether sales of its digital assets, such as the popular Bored Ape Yacht Club family, violate federal law, as reported yesterday by Bloomberg. Such a ruling would see NFTs considered to be more akin to stocks and therefore would need to follow the same disclosure rules, leading to huge changes across the NFT landscape.

NFTs Going Through the Howey Test

Bloomberg reports that, according to “a person familiar with the matter”, the private probe is investigating whether NFTs from Yuga Labs pass the Howey Test – that is whether individuals bought them on the expectation that the value would increase based on the work of others. This investigation, which in its current state accuses Yuga Labs of no wrongdoing, is the latest dot in a connected string that all points to the SEC deciding that NFTs do indeed act as securities.

The suggestion that the SEC is considering classing NFTs as securities is a premise that has been up for discussion ever since Opensea employee Nate Chastain was arrested and charged with insider trading on the platform back in June. His lawyer suggested that the SEC was using the case to regulate NFTs through enforcement, in short getting a court to decide on the matter rather than having to bother with pesky regulation themselves, confident of a victory.

Yuga Labs Wants to Work With Regulators

Yuga Labs responded with a statement to Bloomberg in which it said:

It’s well-known that policymakers and regulators have sought to learn more about the novel world of web3. We hope to partner with the rest of the industry and regulators to define and shape the burgeoning ecosystem. As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.

Of course, we won’t know more until the result of the investigation is made public, but it wouldn’t be a surprise if the SEC is targeting the big fish first in order to send a clear message to the NFT space.