The auction house finds itself in the midst of a captivating legal battle as it assumes the role of a defendant in a class-action lawsuit. This litigation revolves around suing Sotheby’s for the intriguing value of Non-Fungible Tokens (NFTs), sold at auction in 2021.
Alleged Scheme to Defraud Investors
As per an amended complaint filed by plaintiffs with the Central District Court of California on August 4, petitioners have accused a renowned auction house, Sotheby. The plaintiffs, suing Sotheby’s, have alleged that the auction house was involved in a scheme aimed at defrauding investors into buying non-fungible tokens (NFTs). Litigator claimants put the creators of Bored Ape Yacht Club (BAYC) and other upper-crust celebrities on trial for misleading and ambiguous tactics for marketing and selling NFTs.
The aforementioned legal suit asserts that the auction house engaged in fraudulent activities along with Yuga Labs, the creator of BAYC NFTs, with the implied intention of artificially inflating the value of these animated pictures of apes. These digital assets had been in significant demand during 2021, before the decline of the NFT market in the preceding year.
Suing Sotheby’s for Artificial Inflation
The allegations are put on an online auction carried out in September 2021, through which Sotheby’s fetched $24.2 million from the transaction involving a collection of 101 BAYC NFTs. The amount was way above the estimated resale value of the collection, i.e., $12-18 million. As a result, the sale deceptively established an entirely new precedent for the value of these digital assets at the time.
Moreover, prior to the sale, the auction house lied about the interest of legacy art collectors in the listed NFTs, which falsely presented these digital tokens as far more valuable. The lawsuit alleges that Sotheby’s engaged in “deceptive” practices, asserting that the auction house had “misleadingly created the impression that the market for BAYC NFTs had crossed over to a mainstream audience.” The house was also accused with the charges of undermining the severity of the subsequent NFT bear market.
Misrepresentation of Interest and Market Perception
The lawsuit further states that even after the sale closed, Sotheby’s continued to promote the project. On September 9, 2021, Max Moore — Sotheby’s head of contemporary art auctions — apparently disclosed in a Twitter Space conversation that the winning bidder on the BAYC NFT lot was a “traditional” art collector. Whereas the Ethereum transaction records revealed that the digital artwork was, in fact, purchased by the now-default cryptocurrency exchange platform, FTX.
Midway through 2021, FTX ranked as the third-largest centralized cryptocurrency exchange worldwide. By November 2022, however, the company had filed for Chapter 11 bankruptcy.
After the 2021 auction, Michael Bouhanna, the co-head of digital art at Sotheby’s, shared with ARTnews that there’s a noticeable rise in traditional art enthusiasts showing curiosity towards NFTs. He refrained from disclosing the buyer’s identity at that time.
Concluding the Lawsuit Against Suing Sotheby’s
In a recent press release to Artnet News, Sotheby’s denied the credibility of the charges, stating, “The allegations in this suit are baseless, and Sotheby’s is prepared to vigorously defend itself,”
Originally filed in December, the lawsuit additionally lists Yuga Labs and high-profile celebrities, such as Madonna, Paris Hilton, Justin Bieber, Jimmy Fallon, and Mike “Beeple” Winkelmann, as defendants accused of engaging in investor deception. The legal complaint asserts that Yuga Labs orchestrated a façade of authentic celebrity endorsements through payment, leading to artificial inflation of NFT values. The plaintiffs aim to secure compensation exceeding $5 million, excluding expenses and interest.
