Eden Gallery Seeks Dismissal of NFT Lawsuit, Cites Market Downturn as Cause for Losses

Eden Gallery, a prominent art gallery behind the “Meta Eagle Club” non-fungible token (NFT) collection, is facing a class-action lawsuit filed by 36 individuals who claim they were defrauded by the gallery and the project’s artist, Gal Yosef. The plaintiffs allege that the NFTs were a “rug pull” and accuse the gallery of fraud, unjust enrichment, and violations of New York’s General Business Law. However, in a motion to dismiss filed in a New York federal court on January 7, Eden Gallery argued that the losses suffered by the plaintiffs were due to the general decline in the NFT market, not any fraudulent activity or misrepresentation.

Eden Gallery’s Defense: Market Decline, Not Fraud

In its legal response, Eden Gallery argues that the class-action lawsuit should be dismissed, stating that the general decline in the NFT market cannot be equated with fraud or misrepresentation. The gallery contends that the NFT market’s downturn, which has significantly affected the value of NFTs like the “Meta Eagle Club” collection, was driven by broader market forces, rather than actions or promises made by Eden Gallery.

“Plaintiffs may have buyers’ remorse (even though the NFTs were a digital art product rather than an investment product), but their losses, if any, are due to market forces,” the motion reads. This defense suggests that the plaintiffs’ financial losses, if they occurred, were simply a result of the volatile nature of the NFT market, which saw significant growth in 2021 and early 2022, followed by a steep decline.

The class-action lawsuit revolves around the “Meta Eagle Club” NFT collection, which consisted of 12,000 unique humanlike eagle NFTs. The collection was launched between February 2022 and November 2023, with the project raising $13 million in sales during that period. However, the plaintiffs claim that the project was a “rug pull,” a term used to describe a fraudulent scheme in which the creators abandon the project, leaving investors with worthless assets.

The plaintiffs allege that Eden Gallery and artist Gal Yosef misrepresented the value and future prospects of the NFTs, leading them to overpay for the digital assets. They seek compensatory damages, which range from $1,224 to $70,219 per claimant, depending on how much they invested in the project.

Sharp Decline in Meta Eagle Club NFT Value

One of the key elements of the lawsuit is the dramatic drop in the value of the Meta Eagle Club NFTs. When the collection launched in February 2022, the floor price for one NFT was around 0.6 ETH, or approximately $1,800 at the time. As of January 2024, the floor price has fallen to just 0.0051 ETH, or roughly $17, according to data from OpenSea, a leading NFT marketplace.

This steep decline in value is consistent with broader trends in the NFT market. After a surge in demand during the crypto boom of 2021 and early 2022, the NFT market has faced a significant correction. According to CryptoSlam, an industry analytics platform, NFT sales in US dollar terms are down by 98% from their peak in early 2022.

In addition to citing the market downturn as the primary cause for the plaintiffs’ losses, Eden Gallery argues that none of the individual claims meet the jurisdictional threshold of $75,000, which is required for a case to be heard in federal court. The gallery also argues that aggregating the claims of multiple plaintiffs is impermissible in this case.

These legal arguments aim to dismiss the lawsuit on procedural grounds, as Eden Gallery asserts that the plaintiffs’ claims do not meet the necessary legal criteria to proceed with a class action.

NFT Market Decline: A Wider Industry Issue

While the plaintiffs are claiming fraud in relation to the Meta Eagle Club NFTs, they are not alone in facing losses from the broader NFT market decline. The NFT sector, which saw exponential growth in 2021 and early 2022, has since struggled. Even though there has been a recent uptick in NFT sales, driven in part by a recovery in the broader crypto market, the sector remains down approximately 98% from its peak in early 2022 in terms of sales volume, according to CryptoSlam.

This sharp decline in NFT market activity has led to increased scrutiny of NFT projects, with some buyers questioning the value and sustainability of their investments. The Meta Eagle Club lawsuit reflects growing concerns about the speculative nature of the NFT market and whether buyers were misled by creators and marketplaces.

As the legal battle over the Meta Eagle Club NFTs continues, it highlights the ongoing risks and uncertainties in the NFT market. Eden Gallery’s defense, based on the market downturn and general economic forces, raises important questions about the nature of NFTs as investments versus digital art products.

For now, the case will proceed through the courts, with Eden Gallery pushing for dismissal on procedural grounds, while plaintiffs argue they were misled into purchasing overvalued NFTs. Regardless of the outcome, the case serves as a reminder of the volatility of the NFT space and the importance of understanding the risks involved in digital asset investments. As the market continues to evolve, both legal and market forces will play key roles in shaping the future of NFTs.