A proposed class action lawsuit alleges that Yuga Labs “improperly incited” the community to purchase Bored Ape Yacht Club Non-Fungible Tokens (NFTs) and the project-affiliated ApeCoin (APE) token.
The proposed class action leads by law firm Scott + Scott was published on July 21, claiming that Yuga Labs used celebrity promoters and endorsements to “price-inflate” BAYC NFTs and the APE token.
He also alleges that Yuga Labs promoted growth prospects and the possibility of huge investment returns to “unsuspecting investors.”
“After selling millions of dollars of fraudulently promoted NFTs, YUGA LABS launched the Ape Coin to attract more investors.”
“Once it was revealed that the advertised growth was entirely dependent on continued promotion (as opposed to actual utility or underlying technology), retail investors were left with tokens that had lost more by 87% from the inflated price of April 28, 2022,” he added.
The law firm is currently looking for impacted investors who suffered losses on BAYC NFT and Apecoin between April and June this year.
During this period, the APE reached its all-time high of $26.70, before falling around 82.5% to $4.66 at the end of June, while the floor price fell from 151.5 Ether. (ETH) to 92.9 ETH.
There is therefore a class action against @yugalabs as investors were “inappropriately incentivized to purchase financial products created by Yuga Labs”.
— Kevin Wu (@kevwuzy) July 24, 2022
The community appears to be relatively unmoved by the proposed lawsuit, with BAYC hodler @SoapBoxCar suggesting via Twitter on July 24 that a group of people are mad for buying at the top and “having rekt”.
User @briann6211 also made an interesting point in that Yuga Labs “never created a token… Apecoin DAO created a token which was later adopted” by the firm. Several members also noted that Apecoin fell after a free airdrop for BAYC holders, while the broader market was also suffering a steep decline at the time.
Ironically, Yuga Labs never created a token… Apecoin DAO created a token which was later adopted by Yuga Labs.
—Brian (@briann6211) July 24, 2022
If the lawsuit eventually goes to court, it looks like Scott+Scott will have to prove that Yuga Labs and its famous promoters failed to disclose their paid advertisements because they are legally required to do so.
Since the law firm also claims that a pump and dump occurred, it would have to prove that Yuga Labs engaged in such practices, which may be difficult given the strength of Yuga Labs’ projects.
Pump and Dump, or Pull Mats typically involve a project dumping artificially inflated assets on a community before abandoning the project altogether.
The nature of Apecoin and BAYC NFTs can also be tricky, as the law firm may have to argue that they have been promoted as investment contracts in the category of unrecorded titles.
Cointelegraph has contacted Yuga Labs to comment on the proposed lawsuit, but has yet to receive a response from the company.