The judge threw out the 2022 investors’ lawsuit, saying Yuga NFTs are not securities

A US judge has dismissed an investor lawsuit against Web3 company Yuga Labs, ruling that the case did not establish the legal definition of non-nothing tokens (NFTs) as securities.

Judge Fernando M. Olguin ruled that the plaintiffs did not demonstrate that Bored Ape Yacht Club (BAYC), ApeCoin (APE) or other NFTs sold by Yuga satisfied the three-condition Hawaii test, the standard used by the Securities and Exchange Commission (SEC) to determine whether a transaction qualifies as an investment contract. The lawsuit was originally filed in 2022.

Yuba Labs has marketed NFTs as digital collectibles that offer membership benefits to an exclusive club, making them consumer goods rather than investment contracts, Olguin said. He wrote:

“Defendants' promise that NFTs will provide immediate, disruptive benefits alone does not transform those benefits into an investment-like nature.”

The judge also added the legal precedent that most digital assets are not securities, saying that Yuga's Bored Up Yacht Club and other NFT stocks are a “joint enterprise” and that the plaintiffs have not shown that they expect others to make profits.

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There is no clear profit-seeking joint venture.

NFTs traded on public blockchain networks do not create an ongoing and dependent financial relationship between the buyer and Yuga Labs and do not qualify as a “joint enterprise” under the Hawaii test, Olguin said.

Investors who bought NFTs from the company paid Yuga a fee independent of the NFT's value, Consensus attorney Bill Hughes wrote on X.

Ultimately, Holguin ruled that Yuga Labs did not make clear promises of profits to NFT buyers, and that the project's roadmap to profits did not satisfy the conditions under the Hawaii test.

“Statements about the product's intrinsic or intrinsic value are not necessarily statements about profit,” Olgin said.

He added, “The statements about NFT prices and trading volumes are somewhat of a round call, but even then, these statements alone do not create an environment where profits can be expected.”

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