Following an investor’s 2021 lawsuit against Dapper Labs, the company reached an agreement of $4M and reaffirmed that its NBA NFTs are not securities.
Dapper Labs’ CEO Roham Gharegozlou reaffirms that NBA Top Shot nonfungible tokens (NFTs) are not securities through a $4 million settlement agreement to terminate a class-action lawsuit against the company.
According to a filing with the New York District Court dated June 3, Dapper Labs and a class group of investors who sued the company in 2021 because it sold unregistered securities via its NBA Top Shot Moments NFTs have reached a settlement agreement.
Gharegozlou asserted in a June 4 X post that legal discovery in the case determined the NFTs to be on a “decentralized public network,” meaning they “are not securities in the same way that trading cards are not securities.”
“Our primary objective was to establish these allegations, and further litigation would have been a diversion from our fundamental mission,” he stated.
According to the settlement agreement, Dapper Labs is willing to pay the $4 million settlement amount if the plaintiffs, led by Jeeun Friel, cease asserting that the NFTs were securities.
Additionally, it involves Dapper implementing operational modifications to guarantee that its Flow blockchain is adequately decentralized and beyond its sphere of influence. This entails depositing and transferring any remaining Flow tokens under its ownership to the Flow Foundation.
It also promised to implement an annual staff training program covering federal securities laws that would be mandatory.
District Judge Victor Marrero rejected Dapper’s motion to dismiss the lawsuit in February 2023 because the NFTs might qualify as securities under the Howey test — a legal hierarchy — has not yet approved the settlement.
The 2021 class action lawsuit against Dapper Labs alleged that its NBA NFTs constituted securities because their values would escalate with the project’s popularity.
The attorneys for Dapper refuted the claim and compared the NFTs to Pokémon trading cards or baseball.
Additionally, the group asserted that Dapper prevented them from selling the NFTs on other marketplaces, which the most recent settlement agreement states Dapper Labs prevented in March 2022 by authorizing other marketplaces to trade the tokens.
