According to the law firm Scott+Scott, Yuga Labs encouraged “unsuspecting investors” to make large profits on their investments.
According to a planned class-action complaint, Yuga Labs “inappropriately persuaded” the community to purchase nonfungible tokens (NFTs) for the Bored Ape Yacht Club and the project’s associated ApeCoin (APE) token.
On Thursday, a proposed class action brought by the legal firm Scott+Scott was released, alleging that Yuga Labs had “inflated the price” of the BAYC NFTs and the APE token by using celebrity endorsers and promoters.
Additionally, it claims that Yuga Labs sold “unsuspecting investors” on the growth prospects and potential for enormous profits on their investments:
“After selling off millions of dollars of fraudulently promoted NFTs, YUGA LABS launched the Ape Coin to further fleece investors.”
“Once it was revealed that the touted growth was entirely dependent on continued promotion (as opposed to actual utility or underlying technology) retail investors were left with tokens that had lost over 87% from the inflated price high on April 28, 2022,” it added.
Affected investors who lost money on BAYC NFTs and Apecoin between April and June of this year are being sought by the law firm.
APE reached an all-time high of $26.70 over this period before falling around 82.5 percent to $4.66 at the end of June, while the floor price decreased from 151.5 Ether (ETH) to 92.9 ETH.
The anticipated lawsuit doesn’t seem to have much of an impact on the neighborhood, according to BAYC hodler SoapBoxCar, who tweeted on Sunday that many people are upset they “got rekt” when they purchased at the top.
The fact that Yuga Labs “never produced a token… Apecoin DAO developed a token which was later accepted” by the company was also brought out by user briann6211. A number of participants also brought out the fact that the Apecoin collapsed following a free airdrop to BAYC holders at a time when the whole market was also experiencing a severe decline.
If the action is ever heard in court, it appears that Scott+Scott will have to demonstrate that Yuga Labs and its celebrity sponsors violated the law by failing to disclose their sponsored marketing.
Given the strength of Yuga Labs’ initiatives and the fact that the law firm is also alleging a pump and dump incident, it may be challenging to demonstrate that Yuga Labs engaged in such tactics.
Pump and dumps, also known as rug pulls, typically mean that a project has given a community assets that have been exaggerated before completely leaving the initiative.
Since Apecoin and BAYC NFTs were advertised as investment contracts under the heading of unregistered securities, the legal firm may have to make a difficult case about their nature.