Dapper Labs Settles $4 Million Class-Action Lawsuit Over NBA Top Shot NFTs

Last updated on June 24th, 2024 at 02:36 pm

Dapper Labs has agreed to a $4 million settlement to end a class-action lawsuit, which, according to CEO Roham Gharegozlou, confirms that NBA Top Shot nonfungible tokens (NFTs) are not securities.

The settlement, filed on June 3 in the New York District Court, concludes a lawsuit initiated in 2021 by investors who claimed Dapper Labs sold unregistered securities through its NBA Top Shot Moments NFTs.

Gharegozlou stated in a June 4 social media post that the legal discovery process determined the NFTs were on a “decentralized public network,” making them akin to trading cards rather than securities.

“These were the main allegations we wanted to prove, and continuing to litigate would have been a distraction from our core mission. The settlement also involves Dapper Labs reaffirming its commitment to the decentralization of Flow, as well as confirming the full transfer of all $FLOW coins as part of the ecosystem development reserve to the Flow Foundation”,

Gharegozlou said.

The settlement requires Dapper Labs to pay $4 million if the plaintiffs, led by Jeeun Friel, agree to cease asserting that the NFTs are securities.

Additionally, Dapper Labs must implement changes to ensure the Flow blockchain is decentralised. This includes transferring control of any remaining FLOW tokens to the Flow Foundation and initiating mandatory annual staff training on federal securities laws.

The agreement awaits approval from District Judge Victor Marrero, who, in February 2023, denied Dapper’s motion to dismiss the suit, suggesting the NFTs might be classified as securities under the Howey test.

NBA Top Shot, launched in 2020, is a joint effort between the NBA and Dapper Labs. Notable investors include basketball stars Michael Jordan, Kevin Durant, and Klay Thompson. According to CryptoSlam, sales volume for the NFT collection has increased by 12% in the past 24 hours.

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