Buyers of Bored Ape NFTs sue after digital monkeys turned out to be a bad investment

Auction house Sotheby’s has been named as a defendant in a lawsuit filed by investors who regret buying Bored Ape Yacht Club NFTs, so-called digital monkeys, which were sold for highly inflated prices during the 2021 NFT craze. A Sotheby’s auction deceived investors by giving Bored Ape NFTs “an air of legitimacy…. to create investor interest and hype around the Bored Ape brand,” the class action claims.

The increase in Bored Ape NFT prices that the auction yielded “resulted from fraud,” says the lawsuit filed in the U.S. District Court for the Central District of California. It was not disclosed at the time of the auction that the buyer was the now-disgraced FTX, the lawsuit said.

“Sotheby’s representations that the secret buyer was a ‘traditional’ collector had misleadingly created the impression that the market for BAYC NFTs had shifted to a mainstream audience,” the lawsuit claimed. Plaintiffs say that injured investors purchased NFTs “with a reasonable expectation of profit from owning them.”

Sotheby’s sold a lot of 101 Bored Ape NFTs for $24.4 million at its “Ape In!” auction in September 2021, well above pre-auction estimates of $12 to $18 million. That’s an average price of over $241,000, but Bored Ape NFTs are now selling for a bottom price of around $50,000 in the ether cryptocurrency, according to CoinGecko data accessed today.

Investors have previously sued Bored Ape creator Yuga Labs, four company executives and various celebrity promoters including Paris Hilton, Gwyneth Paltrow, Kevin Hart, Snoop Dogg, Serena Williams, Madonna, Jimmy Fallon, Steph Curry and Justin Bieber. The original class action was filed in December 2022 and Sotheby’s was added as a defendant in an amended complaint filed on August 4.

Yuga describes its collection of 10,000 Bored Ape NFTs as “unique digital collectibles that live on the Ethereum blockchain” that serve as a “Yacht Club membership card.” The website has some ‘members only’ areas. “When you buy a Bored Ape, you’re not just buying an avatar or a demonstrably rare piece of art,” says the NFT collection’s website. “You get membership access to a club whose benefits and offers will increase over time. Your Bored Ape can serve as your digital identity and open digital doors for you.”

Trial: Yuga “collaborated” with Sotheby’s

The amended lawsuit claims that “Yuga colluded with art brokers, defendant Sotheby’s, to conduct a deceptive auction.” After the sale, a Sotheby’s representative described the winning bidder during a Twitter Spaces event as a “traditional” collector, the lawsuit said.

The trial said it found that the auction buyer was now bankrupt crypto exchange FTX, whose founder Sam Bankman-Fried is in jail awaiting trial on criminal charges. Ethereum blockchain transaction data shows that after the auction, “Sotheby’s transferred the lot of BAYC NFTs to the wallet address 0xf8e0C93Fd48B4C34A4194d3AF436b13032E641F3,77 which, upon information and belief, is said to be owned/controlled by FTX.” Speculation that FTX was the buyer had been extinguished since at least January 2023.

The lawsuit alleges that Yuga Labs and Sotheby’s violated the California Unfair Competition Law, the California Corporate Securities Law, the US Securities Exchange Act and the California Corporations Code. The plaintiffs also claim that Sotheby’s Metaverse, an NFT trading platform opened after the auction, “operated (or attempted to operate) as an unregistered securities broker.”

“FTX has several deep ties to Yuga such that it would be mutually beneficial to both Yuga and FTX (as well as Sotheby’s) if the BAYC NFT collection were to rise in price and trading volume activity. Upon information and belief, given the extensive financial interests shared by Yuga, Sotheby’s and FTX, each knew that FTX was the true purchaser of the lot of BAYC NFTs at the Sotheby’s auction at the time Sotheby’s representatives publicly represented that a “traditional” buyer had made the purchase,” the lawsuit. so. FTX is not mentioned as a respondent.

The prices of digital monkeys rose and then fell.

After the auction, the price of Bored Ape’s digital assets reached a new peak and continued to rise for months. It peaked at over $420,000 in April 2022 but plummeted to around $90,000 six weeks later, according to CoinGecko.

The named plaintiffs in the class action are Johnny Johnson, Ezra Boekweg, Mario Palombini and Adam Titcher. They seek certification of a class consisting of “all investors who purchased Yuga’s non-fungible tokens (‘NFTs’) or ApeCoin tokens (‘ApeCoin’) between April 23, 2021 and today.” There were over 103,000 account holders of Yuga securities on December 1, 2022, according to the lawsuit.

“While the executive defendants made hundreds of millions of dollars, investors were left with NFTs worth a fraction of their artificially inflated value,” the original version of the complaint said in December.

Yuga and other defendants have a deadline of September 12 to file motions to dismiss the complaint. Sotheby’s told CNN this week that “the allegations in this lawsuit are baseless, and Sotheby’s is prepared to vigorously defend itself.” Yuga Labs similarly called the allegations “completely without merit or factual basis.”

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