Praneet Thakar
In a lawsuit involving Dapper Labs, investors alleged that the sale of NBA Top Shot Moments NFTs violated security regulations. Dapper Labs ultimately settled the case for $4 million. Despite the settlement, CEO Roham Gharegozlou maintained that these NFTs are not securities, and the settlement supports his stance. The class-action lawsuit, which began in 2021, revolved around this issue.
As part of the settlement, Dapper Labs agreed to pay $4 million on the condition that the plaintiffs stop asserting that NBA Top Shot NFTs are securities. Additionally, the company pledged to decentralize its Flow blockchain and provide staff training on federal securities laws.
These measures are aimed at further ensuring compliance and addressing any concerns about the company’s operational practices.
Gharegozlou highlighted that legal discovery had shown the NFTs were part of a decentralized network, reinforcing their comparison to non-securities like trading cards. This was a crucial point for Dapper Labs, aligning with their broader mission of operating a decentralized platform and avoiding the classification of their NFTs as securities.
However, the settlement still requires approval from District Judge Victor Marrero. Earlier in February 2023, Marrero had rejected Dapper Labs’ request to dismiss the lawsuit, indicating that the NBA Top Shot NFTs might be considered securities under the Howey test, a legal standard used to determine if something is an investment contract.
The lawsuit also touched on restrictions Dapper Labs had imposed on NFT sales to other marketplaces. The settlement reveals that in March 2022, Dapper Labs allowed NFTs to be traded on other platforms. The $4 million settlement is a key moment in defining the legal status of NFTs, particularly in relation to securities laws.
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