Auction house Sotheby’s was recently named a defendant in an ongoing class action lawsuit brought by Bored Ape Yacht Club (BAYC) investors against its parent company, Yuga Labs.
Sitting in the Hot Seat
The class action lawsuit, filed in December 2022, named more than 40 defendants with allegations that they artificially inflated the prices of BAYC NFTs through celebrity promotions without proper disclaimers required by the Securities Act’s anti-touting provision.
Celebrities named in the lawsuit included Justin Bieber, Paris Hilton, Jimmy Fallon, Gwyneth Paltrow, Serena Williams, Madonna, Steph Curry and more who have all publicly endorsed BAYC in the past.
One of the biggest catalysts of the heated investigation into celebrity endorsement of crypto and NFT projects began with Kim Kardashian illegally promoting a cryptocurrency called EthereumMax (EMAX) in 2021. She settled with the SEC a year later by paying $1.26 million USD in fines, forfeiture and interest for failing to disclose that she had been awarded $250,000 USD to promote EMAX.
Other celebrities also under fire for promoting other crypto projects, including the now-fallen FTX exchange, included Ne-Yo, Lindsay Lohan, Justin Sun, Soulja Boy, Floyd Mayweather, Jr., DJ Khaled, and more.
Why Sotheby’s?
The amended complaint, filed Aug. 4, alleges that in September 2021, Sotheby’s, in conjunction with Yuga, was involved in a plan to “hold a deceptive auction” of 101 BAYC NFTs dubbed “Ape In!”
Sotheby’s told CNN that the allegations against it are “baseless” and that it is prepared to “vigorously defend” itself, as well as Yuga sharing the same sentiment.
The amended complaint also cited Max Moore, the auction house’s head of contemporary art auctions, for posting an ad for the BAYC auction from his Twitter account, while also publicly touting it during an official Sotheby’s x BAYC Sale Twitter Spaces, hosted by Rug Radio founder Farokh Sarmad.
It went on to claim that Sotheby’s had claimed to have sold the entire batch of NFTs to an anonymous buyer for $24.4 million, with each BAYC NFT having a floor price of $240,000 – a $100,000 increase over the original price of the BAYCs at the time.
MoonPay’s “Confidential Witness #1”
The amended complaint also references a “confidential witness” who claims to have worked in MoonPay’s compliance department, claiming that there were suspicions surrounding MoonPay’s activities related to facilitating celebrity endorsement of the BAYC NFTs.
It further alleges that a number of MoonPay compliance officers were given “enhanced access to files and data related to financial transactions of MoonPay customers” and that there were no files or information about these famous customers – even after conducting “Enhanced Due Diligence , Know your customer and anti-money laundering controls” on MoonPay customers.
In June, The block reported that the $3.4 billion crypto startup helped drive up BAYC prices by donating BAYC NFTs in exchange for the celebrities promoting them on their own accounts, and donating NFTs to some celebrities without the expectation of payment.
Either way, the current NFT landscape is certainly murky, raising legitimate concerns about the potential legal ramifications behind any decision to publicly market a project and how to go about it.
The answers we seek ultimately lie with the SEC and our courts.