Dapper Labs’ settlement states that NBA NFTs are not securities

Dapper Labs’ $4 million settlement agreement to settle a class action lawsuit against the company argues that NBA Top Shot non-fungible tokens (NFTs) are not securities, according to CEO Roham Gharegozlou.

According to a New York district court archiving On June 3, Dapper Labs reached a settlement agreement with a class of investors who sued the company in 2021, alleging it issued unregistered securities through its NBA Top Shot Moments NFTs.

In a June 4 post, Gharegozlou said legal discovery in the case established that the NFTs were on “a decentralized public network,” meaning they “are not securities in the same way that trading cards are not I am”.

“These were the primary allegations we wanted to prove, and continuing to pursue litigation would have been a distraction from our primary mission,” he noted.

According to the settlement agreement, Dapper Labs is willing to pay the $4 million settlement if the plaintiffs, led by Jeeun Friel, agree to stop claiming that the NFTs were securities.

Dapper is making business changes to decentralize its Flow blockchain. This includes depositing and transferring control over all outstanding FLOW tokens to the Flow Foundation.

It has also committed to establishing a mandatory annual staff training program that includes federal securities regulations.

Gharegozlou added that the company is “not aware of any regulator,” such as the U.S. Securities and Exchange Commission (SEC), arguing that Moments NFTs are securities. In April, crypto.news reported that the SEC had previously launched an investigation into Dapper Labs, but it was later dismissed in September 2023.

Meanwhile, the latest settlement has yet to be accepted by District Judge Victor Marrero, who denied Dapper’s motion to dismiss the request in February 2023 after concluding that NFTs could be considered securities according to the Howey test, a legal framework for classifying securities.

Dapper Labs was served with a class action lawsuit in 2021, accusing the company’s flagship product, NBA Top Shot Moments, of being unregistered securities because the value of NFTs would increase with the overall popularity of the project.

The plaintiffs further alleged that Dapper Labs prevented investors from cashing out for “months at a time” to keep funds locked on the platform, and that Moments could not be purchased or traded on other NFT platforms at the time the lawsuit was filed.

Dapper’s lawyers rejected the complaint, instead comparing NFTs to baseball or Pokémon trading cards.

The group also claimed that Dapper prevented them from selling the NFTs on other platforms, which according to the most recent settlement agreement Dapper Labs prevented in March 2022 by granting other marketplaces permission to trade the tokens.

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