Last week, a group of art investors announced they were suing Sotheby’s—one of the world’s largest art brokers—for allegedly colluding with a blockchain firm to inflate the price of non-fungible tokens (NFTs) during a 2021 auction.
The class action lawsuit—filed by a group of anonymous NFT buyers—was originally filed against a wide range of celebrities and influencers in December 2022, accusing big names like Steph Curry and Madonna of being paid to raise the profile of the Bored Ape Yacht Club NFTs.
Now, eight months later, the California lawsuit has been amended to include the high-profile auction house, in a case that asks an increasingly relevant question: Is art principally an asset class or a creative endeavor?
Specifically, it claims that digital blockchain company Yuga Labs (the firm that designed the NFTs) paid Sotheby’s to create the impression that NFTS had crossed over to a mainstream audience.
Art versus Asset class
Sean Masson, a partner at the New York law firm representing the plaintiffs, argued that his clients plainly saw the NFTs as a financial asset, and had no opinion on their creative merit.
“Investors absolutely thought of this as an investment, as opposed to some sort of collectible or a piece of art that they wanted to own. I don’t really know of anyone who went into this with an art collector’s mindset,” Masson said, in a call with Quartz.
He also pointed to Sotheby’s reputation as an authoritative judge of fine art, arguing that his investors were duped by the brand name into thinking the primate-themed digital images would hold their value.
“The process of Sotheby’s having a full-on auction for NFTs that they promoted was seen by investors as a stamp of approval,” Masson said. “If regular art collectors, not crypto bros, are purchasing this stuff, then we are in the right place, this is a valuable asset class that we want to purchase and invest in.”
What happens when an auction house sells bad art?
This line of critique rests on a tricky question: Does Sotheby’s have a fiduciary responsibility to only sell good art that can be guaranteed to appreciate? Sotheby’s certainly doesn’t think so.
“The allegations in this suit are baseless, and Sotheby’s is prepared to vigorously defend itself,” Derek Parsons, the art broker’s vice president of communications, wrote in an email to Quartz.
Going back to the initial sale in September 2021, the only public statement made by Sotheby’s about the merit of NFTs came from Michael Bouhanna, the firm’s co-head of digital art, who gave a rather equivocal endorsement saying that there was a growing interest in NFTs from “traditional art buyers.”
Despite the private art market being worth roughly $580 billion globally—a bit larger than the size of the global smartphone market—it has little regulatory oversight.
With the benefit of hindsight, it is easy to call the NFT market a major mistake. In two years, the average Bored Ape piece has lost 78% of its value, leaving investors with big losses and a dumb picture of a cartoon.
But, even if the lawsuit’s accusations about collusion end up being true, what is the legal recourse? Even in a highly regulated industry—like Wall Street—its extremely hard to pin the blame for a poorly performing stock on a broker. In the inherently subjective of the art world? Even harder.
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