Dapper Labs’ $4M settlement reaffirms NBA NFTs aren’t securities
NFTs are not securities because they reside on a “decentralized public network.” This means that they "are not securities any more than trading cards are securities."
Dapper Labs' $4 million settlement agreement to end a class-action lawsuit against the firm reaffirms NBA Top Shot nonfungible tokens (NFTs) are not securities, according to CEO Roham Gharegozlou.
The June 3 New York District Court filing shows Dapper Labs reached a settlement agreement with a class group of investors who had sued the firm in 2021, alleging it sold unregistered securities through its NBA Top Shot Moments NFTs.
In a June 4 X post, Gharegozlou claimed the case's legal discovery found the NFTs were on "a decentralized public network," which meant they "are not securities in the same way trading cards are not securities."
"These were the main allegations we wanted to prove, and continuing to litigate would have been a distraction from our core mission," he added.
The settlement agreement shows Dapper Labs is prepared to pay the $4 million settlement amount if the plaintiffs, led by Jeeun Friel, agreed to stop claiming the NFTs were securities.
It also sees Dapper make business changes to ensure its Flow blockchain is sufficiently decentralized and out of its control, which includes depositing and relinquishing control over any remaining Flow tokens it holds to the Flow Foundation.
It also pledged to enact a mandatory annual staff training program that covers federal securities laws.
The settlement is yet to be approved by District Judge Victor Marrero, who, in February 2023, knocked back Dapper's bid to toss the suit after finding the NFTs could be considered securities under the Howey test — a legal framework to classify securities.
Dapper Labs was hit with the class suit in 2021, which claimed its NBA NFTs were securities as their prices would increase as the project gained popularity.
Dapper's lawyers denied the assertion and instead likened the NFTs to baseball or Pokémon trading cards.
The group also claimed Dapper stopped them from being able to sell the NFTs on other marketplaces, which the latest settlement agreement outlines Dapper Labs stopped in March 2022 by giving other marketplaces permission to trade the tokens.
