Dapper Labs Settlement Affirms NBA NFTs Are Not Securities
Dapper Labs has agreed to a $4 million settlement to resolve a class-action lawsuit, maintaining that NBA Top Shot nonfungible tokens (NFTs) are not securities. This settlement, according to CEO Roham Gharegozlou, aligns with the company’s stance that these digital collectibles do not fall under securities regulations.
Legal Resolution and Settlement Details
On June 3, the New York District Court documented Dapper Labs‘ settlement with a class of investors who claimed in 2021 that the company issued unregistered securities through its NBA Top Shot Moments NFTs. The $4 million settlement agreement stipulates that plaintiffs, led by Jeeun Friel, will cease to argue that these NFTs are securities.
CEO’s Statement on Decentralization and Regulatory Compliance
In a June 4 post on X, Gharegozlou emphasized that the legal discovery process demonstrated the NFTs’ presence on a “decentralized public network,” equating them to trading cards rather than securities. He mentioned, “These were the main allegations we wanted to prove, and continuing to litigate would have been a distraction from our core mission.”
The agreement also reveals Dapper Labs’ commitment to decentralizing its Flow blockchain by transferring control of any remaining FLOW tokens to the Flow Foundation. Additionally, Dapper Labs will implement an annual staff training program covering federal securities regulations.
SEC Involvement and Judicial Review
Gharegozlou noted that Dapper Labs is “not aware of any regulator,” including the United States Securities and Exchange Commission (SEC), deeming Moments NFTs as securities. Although the SEC had investigated Dapper Labs, the probe concluded in September 2023 without further action.
Despite this settlement, the proposed agreement is pending acceptance by District Judge Victor Marrero. Earlier, Judge Marrero denied Dapper’s motion to dismiss the lawsuit in February 2023, suggesting that the NFTs could be classified as securities under the Howey test, a standard for identifying securities.
Allegations and Comparisons to NBA Trading Cards
The lawsuit filed in 2021 accused Dapper Labs of issuing unregistered securities through NBA Top Shot Moments, claiming the value of these NFTs was tied to the project’s overall success. Plaintiffs argued that Dapper Labs restricted investors from cashing out to maintain funds on the platform and initially prevented Moments from being traded on other NFT marketplaces.
Dapper Labs’ defense compared the NFTs to baseball or Pokémon trading cards, arguing they should not be considered securities. The latest settlement reflects a significant development, stating that since March 2022, Dapper has allowed other marketplaces to trade these NFTs.
Future Steps for Dapper Labs
Moving forward, Dapper Labs is focused on further decentralizing its operations and enhancing compliance measures. This settlement marks a pivotal moment for the company, reinforcing its stance on the classification of NFTs while addressing the plaintiffs’ concerns.
As the blockchain and NFT landscapes evolve, Dapper Labs remains committed to innovation within the framework of regulatory compliance, setting a precedent for how digital collectibles are viewed and traded in the broader market.
