On September 30, 2025, the United States District Court for the Central District of California granted a motion to dismiss sought by defendants Yuga Labs, Inc., et al., while permitting plaintiffs Adonis Real, et al. leave to amend their complaint by October 10, 2025.

The case of Adonis Real, et al. v. Yuga Labs, Inc., et al., which still remains in the pleading phase, has become a key U.S. federal court battleground on the discussion of how and when cryptographic tokens are considered securities and therefore subject to the oversight of the United States Securities and Exchange Commission (SEC). The case also features a notable star-studded list of defendants. The named defendants include Yuga Labs and its executives and board members, as well as a lengthy list of celebrity promoters, including Madonna, Justin Bieber, Snoop Dogg, Jimmy Fallon, and Kevin Hart, among others. The suit also names as defendants brands like Adidas for making undisclosed paid promotions, MoonPay for facilitating celebrity NFT purchases and hiding financial ties, and Sotheby’s for auctioning BAYC NFTs.

In what could signal sentiment towards many digital assets and their relation to U.S. securities laws, the court dismissed the plaintiffs’ most recent complaint because the plaintiffs failed to adequately allege that Yuga Labs’ digital assets, the widely known Bored Ape Yacht Club collection of NFTs (along with several other digital assets Yuga Labs released), qualify as securities. The court granted the plaintiffs leave to amend their claim and put forward a more convincing argument, but this decision has shown that the plaintiffs are facing an uphill battle to do so.

Background

Yuga Labs is best known for creating the Bored Ape Yacht Club (BAYC) series of non-fungible tokens (NFTs), one of the most prominent NFT collections. Yuga Labs launched the BAYC NFT series in 2021, which consists of 10,000 unique digital images of cartoon apes, each with varying traits, such as clothing, expressions, and accessories.

Yuga Labs marketed the BAYC NFTs as granting access to exclusive perks, including community events, merchandise, and certain IP rights to commercialize their particular NFTs. The project quickly became a cultural phenomenon, symbolizing status in the Web3 and crypto communities, with floor prices soaring from an initial mint price of 0.08 ETH (around $190 at the time) to over 150 ETH (exceeding $400,000) in early 2022 amid the broader NFT boom taking place at the time. A “solid gold” ape reached a peak value of approximately $3.4 million when Sotheby’s sold it at auction. Yuga Labs expanded its ecosystem with several spin-off collections, including the Mutant Ape Yacht Club, the Bored Ape Kennel Club, the ApeCoin governance token, and Otherside, a proposed metaverse for the BAYC community.

The ecosystem thrived during the 2021-2022 crypto bull market but collapsed amid the so-called “crypto winter” that started in mid-2022. Factors included broader market downturns (such as the Terra/Luna crash and the FTX bankruptcy), regulatory scrutiny from the SEC on unregistered securities, and allegations of market manipulation. BAYC floor prices dropped from over 100 ETH in May 2022 to around 50 ETH by late 2022 and to under 10 ETH by 2025, wiping out billions in market value. Investors who bought at peaks claimed losses due to alleged hype-driven price inflation, undisclosed insider sales, and failure to deliver on metaverse promises. This backdrop set the stage for litigation.

At its core, the plaintiffs’ claim is that the Yuga Labs’ NFTs and ApeCoin were marketed as investments with growth potential and that the defendants artificially inflated demand and prices for the NFTs and ApeCoin through a “pump-and-dump” scheme. The plaintiffs allege that the price spike around April 2022, followed by a significant crash around November 2022, was due to fraud by the defendants, not market forces.

At this stage of the suit (the initial pleadings of the case), the plaintiffs must present claims that are “plausible” and allow the court to draw a reasonable inference that the defendants may be liable for the misconduct alleged. If the plaintiffs can establish that their claims are “plausible,” then the court will deny a motion to dismiss.

The Decision

The plaintiffs must adequately allege that Yuga Labs’ digital assets were securities. The court applied the oft-quoted Howeytest and ultimately concluded that the plaintiffs had not made sufficient allegations. The U.S. Supreme Court established the Howey test in the 1946 case of SEC v. W.J. Howey Co., creating a foundational framework that determines whether a transaction qualifies as an “investment contract” under federal securities laws. If it does, issuers must register the asset with the SEC or qualify for an exemption, which subjects them to stringent disclosure and anti-fraud regulations. The test has gained renewed prominence in the cryptocurrency era, where regulators apply it to assess whether digital assets like tokens, NFTs, or decentralized finance (DeFi) offerings constitute securities, potentially requiring issuers to comply with laws designed to protect investors from undisclosed risks and manipulative practices.

The test consists of four prongs: (1) an investment of money, which in crypto contexts is typically straightforward, such as purchasing tokens with fiat or other cryptocurrencies; (2) in a common enterprise, which courts often interpret as a pooling of investor funds (horizontal commonality) or reliance on a promoter’s success (vertical commonality), (3) with a reasonable expectation of profits, which marketing hype around token appreciation or yields often triggers, distinguishing speculative investments from mere utilities like in-game items; (4) derived solely from the efforts of the promoter or a third party, emphasizing dependence on the issuer’s managerial skills, such as ongoing platform updates or ecosystem growth in projects like NFTs tied to metaverse promises. Failure of any prong means the asset isn’t an investment contract.

Although the first prong of the Howey test, “an investment of money,” is often considered a low bar and typically undisputed, in this case, the defendants argued that this prong was not met. The defendants focused less on the exchange of money and more on the intent, or lack thereof, to make an “investment,” arguing that the consumptive use of their assets (e.g., gaining access to exclusive events) was the marketed purpose for ownership of the assets. By contrast, the plaintiffs argued that the consumptive use was supplementary, and that allusions by the defendants to “inherent, long-term, value” and “comments on the price” of the assets created an incentive to purchase the assets specifically as an investment. The court ultimately sided with the defendants, indicating that the promotional statements made by the defendants did not rise to the level of “investment incentives” present in previous digital asset cases like those against Dapper Labs and DraftKings.[1]

The court likewise found that plaintiffs failed to plead a “common enterprise” under either horizontal or vertical commonality. While prior NFT cases have found horizontal commonality where tokens were traded on a promoter-controlled marketplace, the assets here were purchased through independent exchanges. Given that most of the NFTs were non-fungible and not tied to a shared trading platform, the court held that horizontal commonality was lacking. As to vertical commonality, plaintiffs alleged that defendants earned “creator fees” regardless of whether plaintiffs profited, effectively severing any link between the parties’ financial interests and defeating that theory as well.

The plaintiffs also failed to meet the third prong of the test. The plaintiffs alleged it was reasonable for them to have an expectation of profit based on the defendants’ use of phrases such as “inherent, long-term value” and “intrinsic value” in their promotional material. The court disagreed, finding the comments by the defendants did not rise to the level of those in previous cases, such as the use of “rocket ship,” “stock chart,” and “money bags” emojis in the Dapper Labs case, or the statements that purchasers would benefit from “guaranteed scarcity” and could “keep [the] open market profit” in the DraftKings case.[2]

Having failed all three prior prongs, discussion of the final prong was understandably brief. However, it was in this final prong that the court sided with the plaintiffs. The court agreed that the plaintiffs, presuming they had satisfied the previous prongs of the test, had adequately alleged that they relied on efforts of the defendants. The defendants primarily established this through materials they distributed indicating they themselves would implement a project roadmap on which the future value of the associated assets would likely depend. Notably, the court disagreed with the defendant’s argument that, because the plaintiffs had purchased the assets on secondary markets, they could not possibly have expected to benefit from the defendants’ efforts. The court referred to the decision in the Terraform Labs lawsuit in which the court determined that where parties made representations of the asset in question on social media or other public platforms, it was reasonable to presume that such representations would have reached the purchasers and motivated them to make their purchase.

Next Steps

The court ordered the plaintiffs to file an amended complaint or request an extension by October 10, 2025. The plaintiffs must present stronger allegations that Yuga’s assets meet the Howey test, including specific facts showing (1) marketing statements that conveyed investment intent, (2) a common enterprise through pooled funds or reliance on Yuga’s efforts, and (3) a reasonable expectation of profits based on Yuga’s managerial activities rather than market forces. The plaintiffs amended their complaint; the defendants will likely move to dismiss again.

Wider Implications

Whether a digital asset transaction qualifies as an investment contract depends on the specific facts and circumstances, particularly the nature of marketing, purchaser expectations, and promoter activity. The resolution of this case will not alter regulatory agendas, particularly as the SEC considers rulemaking more favorable to the digital asset industry, but it could still influence litigation and compliance strategies in meaningful ways.

If the court allows the case to proceed and finds that the NFTs at issue constitute securities, it could encourage additional lawsuits against issuers, marketplaces, and promoters. Conversely, a dismissal would strengthen defenses for such parties, signaling judicial hesitation to expand securities laws to cover NFTs in the absence of clear investment characteristics. Regardless of the outcome, the case underscores the importance for market participants to account for the plaintiffs’ bar, which continues to test new theories in digital asset litigation.

Get in Touch

Bull Blockchain Law LLP is a boutique law firm dedicated to advising clients at the intersection of digital assets, fintech, and financial regulation. If you have questions about how these developments may impact your business, please contact any member of our team directly or schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. For specific advice regarding your situation, please consult qualified counsel.

[1] Friel v. Dapper Labs, Inc., No. 21 Civ. 5837 (VM), slip op. at 63 (S.D.N.Y. Feb. 22, 2023); Dufoe v. DraftKings Inc., No. 23-cv-10524-DJC, slip op. at 17 (D. Mass. July 2, 2024).

[2] Id.