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According to the report, the SEC is concerned that Yuga Labs is violating federal law by issuing NFTs that act like stocks.
The US Securities and Exchange Commission (SEC) has initiated an investigation into Yuga Labs, the creator of the Bored Ape Yacht Club NFT collection. Citing unnamed sources, Bloomberg said the SEC probing Yuga Labs is over securities violations. The regulator is looking into the Bored Ape Yacht Club Ethereum NFTs and the ApeCoin token to determine if there are unregistered securities or not.
SEC Investigates Yuga Labs
According to the report, the SEC is concerned that Yuga Labs is violating federal law by issuing NFTs that act like stocks. Additionally, the financial watchdog is examining the Ethereum-based ApeCoin token. The NFT issuer distributed the token to Bored Ape Yacht Club and related NFTs holders after its launch earlier in the year. ApeCoin went live in March with a fixed one billion supply. Meanwhile, 62% of the tokens were allocated to the ApeCoin community, including 15% to existing NFT holders. Yuga Labs also got some percentages. The same goes for the Jane Goodall Legacy Foundation, etc.
Bloomberg noted that the probe is private, and the SEC has not accused Yuga Labs of any violations. Also, the ongoing investigation does not necessarily mean the agency will sue the firm. Yuga disclosed:
“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.”
SEC’s Continuous Attempt to Ensure Regulatory Compliance
The Commission has been investigating if NFTs are securities for some time now. The probe into Yuga Labs is the latest attempt by the SEC chair, Gary Gensler, to ensure that the crypto market complies with regulations. Over time, the chair has voiced his opinion of the agency regulating crypto assets as they have securities features. Per a 1940 Supreme Court decision, the financial watchdog has the power to tag investments as securities. This is possible as far as there is an expectation of profits from management. To ensure regulatory compliance, the SEC has launched investigations into many crypto asset firms. It has also sued many others for failure to register its offering. Let us not forget the $50 million penalty against BlockFi earlier this year.
In February, the SEC revealed that it charged BlockFi due to failure to register its Interest Account, a crypto lending platform. The agency added that the crypto firm also violated the registration rules of the Investment Company Act of 1940. In addition to the $50 million settlement charges, BlockFi also agreed to pay a separate $50 million to 32 states over the same accusation.