Last week a Texas man filed a lawsuit against NFT marketplace OpenSea, claiming its negligence was responsible for him losing his Bored Ape Yacht Club NFT.
Filed in the U.S. District Court for the Southern District of Texas, Timothy McKimmy claims a bug known to OpenSea allowed his NFT—Bored Ape #3475—to be bought off him for 0.01 ETH (today that’s worth $26), then flipped it for 99 ETH (today that’s worth $249,000). As such he's suing OpenSea for his digital image to be returned and for damages exceeding $1 million. Now, you might be asking “why is he suing for over $1 million when the Bored Ape last sold for just shy of $250,000?” Well, your honor, it’s because the Bored Ape is apparently a rare one.
“Plaintiff’s Bored Ape has significant value; this is unquestionable. For example, Justin Bieber purchased Bored Ape #3001 for 500 ETH, or $1.3 million at the time of the transaction. Bieber’s Bored Ape has a rarity score of only 53.66 and a rarity rank of #9777,” the lawsuit reads. “In contrast, Plaintiff’s Bored Ape has a rarity score of 138.52 and a rarity rank of #1392. It is in the top 14 percent rarity, and it is significantly rarer than Bieber’s. Thus, Plaintiff’s Bored Ape’s value is arguably in the millions of dollars and growing as each day passes.”
The crux of the legal argument doesn’t rest on this, but instead insists OpenSea is a bad actor whose behavior constitutes negligence as well as a breach of fiduciary duty, trust, contract, and implied contract.
To that end, the lawsuit argues OpenSea was aware of the widely-known bug that let someone list McKimmy’s Bored Ape for 0.01 ETH and other exploits. Despite "having full knowledge of these security issues, Defendant did not properly inform its users and did not timely put adequate safety measures in place," the lawsuit reads. Instead of shutting down and fixing the issues, McKimmy and his lawyer argue OpenSea kept operating so that it could keep collecting its 2.5 percent transaction fee. This, they suggest, is in line with other controversies about the platform: OpenSea recently revealed 80 percent of the NFTs created with its minting tool were fraudulent, it has suffered multiple major breaches including an ongoing phishing attack, and its Head of Product was involved in a insider trading scandal on the platform.
“Our client is extremely frustrated with OpenSea, and understandably so. He has numerous open tickets and reports that OpenSea continues to ignore,” Andrew Dao, McKimmy's lawyer, told Motherboard in a statement. “Also, he did not click on any phishing emails or links. OpenSea should have shut down its platform to address security vulnerabilities; it chose not to. This decision put many users, including our client, at risk.”
As Matt Levine pointed out in his recent Money Stuff column, a federal judge might have a few questions here, such as “Why can’t you just right-click and save it, then you’d have your ape back.” All of this, however, is secondary to a harsh reality many involved with crypto have been ignoring: “For most practical purposes, what the outside authorities say about ownership matters more than what the blockchain says.”
This is just one of the reasons why crypto is so desperately struggling to (literally) code new property rules that impose artificial scarcity on the digital world. A few speculators, platforms, and investors are building a dysfunctional ecosystem where authorities they happen to run have greater say about ownership than, say, the U.S. District Court for the Southern District of Texas. And yet, the latest iteration of the libertarian dream to build a breakaway financial and legal system has only hastened the involvement of regulatory agencies, financial institutions, and federal courts.