Why Madonna, Bieber & Snoop will likely be spared by the Bored Ape Yacht Club NFT lawsuit

A class-action suit claims that Yuga Labs – creator of the famed Bored Ape Yacht Club NFT series – used celebrity promoters to dupe “unsuspecting investors.” Legal experts break down the prospects of the case and how it differs from others.Madonna, Justin Bieber, Jimmy Fallon, Gwenyth Paltrow, Serena Williams, Kevin Hart, Snoop Dogg, Paris Hilton, Steph Curry ... no, this isn’t the guest list for an elite Hollywood party; they’re just some of the celebrities that are at the center of a new class-action lawsuit against Yuga Labs, the company behind the Bored Ape Yacht Club NFT series. The new case, filed December 8 in the California Central District Court, targets the company and more than 30 individual defendants – including the celebrities mentioned above. Plaintiffs Adonis Real and Adam Titcher are being represented by Scott+Scott Attorneys at Law LLP.“The complaint alleges that Defendants violated provisions of the [Securities Exchange Act of 1934] by making false and misleading statements concerning Yuga’s growth prospects, financial ownership, and financial benefits for Yuga securities investors, as well as using celebrity promoters to lure in unsuspecting investors so that Yuga insiders could sell the unregistered Yuga securities in violation of the [Securities Act of 1933],” Scott+Scott wrote in a press release dated December 9. The lawsuit is seeking a minimum of $5m for the plaintiffs.“In our view, these claims are opportunistic and parasitic,“ a Yuga Labs spokesperson told The Drum in an email. “We strongly believe that they are without merit, and look forward to proving as much.”Are the celebrities at fault?The simple act of publicly promoting an NFT is not prosecutable in and of itself, so long as the promoter discloses any financial ties that he or she has to the brand behind the tokens. “If Madonna or Kevin Hart talk up an NFT project on social media and later the price goes down, they’re not responsible for the losses of the people who bought the NFTs,“ David B Hoppe, managing partner at Gamma Law, told The Drum in an email. “They may get in trouble with the SEC (if the NFTs are ’securities’) or the FTC (if they fail to disclose any payment they receive), but that doesn’t mean that they have a legal duty to the people who bought the NFT they were pitching,“ says Hoppe.The only way to win a case like that is to show somehow that the celebrity endorser was involved in a ’pump-and-dump scheme’ with the promoters or was otherwise involved in some nefarious activity that made them more than just a spokesperson for the NFT, says Hoppe. “In this case the plaintiffs’ allegations are not so straightforward. They involve equity ownership by certain of the BAYC celebrity endorsers in MoonPay, the crypto payment provider, with undisclosed benefits allegedly passing to the celebrities. Whether the alleged conspiracy they attempt to lay out will be sufficient for this lawsuit to get past a motion to dismiss remains to be seen.”The expectation for investors to act reasonably comes to the foreThis isn’t the first time that A-listers have been sued for their involvement in NFT or crypto enterprises.As those industries continue to spiral downward, some investors have filed lawsuits claiming that celebrity endorsements led to their investing in cryptocurrency and virtual assets, and then to their financial ruin. At least one of these has been struck down in court: last week, a federal judge dismissed a class-action lawsuit against a number of celebrities – including Floyd Mayweather Jr and Kim Kardashian – who had been promoting DeFi platform EthereumMax, with the following statement: “While the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment.” In other words: investors need to be held accountable for their investments. Lost all your money on an unregulated virtual asset? You only have yourself to blame. In June, an American man filed a lawsuit against billionaire Elon Musk and his companies SpaceX and Tesla, seeking a staggering $258bn in damages for Musk’s and the companies’ alleged involvement in a scheme to defraud investors centered on the crypto token DogeCoin. The US Securities and Exchange Commission (SEC) also recently fined Kim Kardashian $1.26m for failing to disclose her financial ties to EthereumMax, which she had been promoting online.Regardless of how the new lawsuit against Yuga Labs plays out, it’s a striking reminder of just how far the once-high-flying NFT industry has fallen. “Class actions in the NFT and broader crypto space, like the dismissed EthereumMax matter involving Kim Kardashian and Floyd Mayweather Jr or the recently filed class action concerning Yuga Labs, are further confirmation that we are still in the hangover phase for a market that was so recently at the height of euphoria,“ Harry Richt, founding attorney at Richt Law Firm, wrote to The Drum in an email. “While the merits of each cause of action in the Yuga Labs complaint remain to be adjudicated, the attempt to find liability among a host of ’deep-pocketed’ celebrities based on a broad range of legal theories illustrates the immense losses experienced by a large swathe of people who are desperate for some form of recovery … Going forward, cases like the one involving Yuga Labs will help to delineate where to draw the line for liability among influencers and other involved parties.”The press release from Scott+Scott notes that the value of ApeCoin, Yuga Labs’ native crypto token, reached a low point of $2.70 a token on November 13 – marking a drop in value of roughly 90% since April 2021.For more, sign up for The Drum’s Inside the Metaverse weekly newsletter here.

Why Madonna, Bieber & Snoop will likely be spared by the Bored Ape Yacht Club NFT lawsuit

By Webb Wright | Junior Reporter

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