SEC Investigating Bored Ape Creator Yuga Labs Over Securities Violations: Report

The United States Securities and Exchange Commission is investigating Yuga Labs over whether its Bored Ape Yacht Club Ethereum NFTs and the ApeCoin token are unregistered securities, according to Bloomberg.

The report, which cites an unnamed source, claims that the agency is exploring whether the crypto startup broke federal law by issuing NFTs that act like stocks, as well as exploring the distribution of the Ethereum-based ApeCoin token that launched earlier this year. Yuga Labs has not yet been accused of any wrongdoing and the investigation may not necessarily lead to charges, per the report.

“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,” Yuga Labs told Bloomberg in a statement. “As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.”

The Bored Ape Yacht Club is one of the most successful NFT projects to date, with the main collection of 10,000 NFTs initially selling to the public at $190 worth of Ethereum apiece. That sale yielded Yuga roughly $1.9 million. Follow-up and spinoff projects, the Mutant Ape Yacht Club and the Otherside metaverse game, then raked in $96 million and $319 million, respectively.

BAYC has also generated nearly $2.5 billion worth of secondary trading volume, per data from CryptoSlam. Mutant Ape Yacht Club and Otherside have added another $3.35 billion worth of secondary trading volume to that tally. Yuga Labs earns a 2.5% royalty fee on each of those sales.

Bored Ape NFT owners are entitled to various benefits, including access to a private community and live events, as well as the ability to use their owned illustration to create and sell derivative artwork and projects. Many of the NFTs have sold for seven-figure sums, and the project has attracted a number of celebrity owners as it has gained popularity.

Furthermore, Bored Ape NFT holders have been granted various past benefits, including free Bored Ape Kennel Club, Mutant Ape Yacht Club, and Otherside NFTs, plus an allotment of ApeCoin when that token launched in March.

Officially, ApeCoin was not created or launched by Yuga Labs—it was issued by the Ape Foundation, which is fronted by a board that includes prominent Web3 builders like Reddit co-founder Alexis Ohanian and FTX Ventures head Amy Wu.

That approach was apparently chosen due to regulatory concerns, although Bloomberg reports that the SEC is still investigating the launch and distribution of the token. Yuga Labs and its founders have benefited greatly from the launch of ApeCoin, which has a current price of about $4.75 per token and a market cap of just over $1.5 billion.

ApeCoin’s price tumbled shortly after the report was published, and now is down about 9% over the last 24 hours per data from CoinGecko.

The SEC has increased its scrutiny of the crypto and NFT markets under the leadership of chair Gary Gensler, who was named to the post in April 2021. Gensler has shared a view that nearly any other crypto token besides Bitcoin could be a security, and has pursued a number of recent actions—including naming nine tokens listed on Coinbase as securities.

Editor’s note: This article was updated after publication to include additional details about Yuga Labs and the sale of Bored Ape NFTs and ApeCoin.