On February 22, the Southern District of New York Court ruled that NBA Top Shot Moments, non-fungible tokens (NFTs) released by Dapper Labs, are securities.
The decision came as part of a class-action lawsuit filed by plaintiffs including Gary Leuis against Dapper Labs and its CEO Roham Gharegozlou. The suit alleged that the defendants violated securities law by selling NFTs, known as NBA Top Shot Moments, which are considered securities without registering with the US Securities and Exchange Commission (SEC).
Dapper Labs had requested that the court dismiss all allegations in the complaint, which was initially filed in 2021. However, the judge rejected the motion and ruled in favor of the plaintiffs.
NBA Top Shot is a popular blockchain game based on the US professional basketball league NBA. Card packs sell out quickly upon release, and the game has become one of the successful examples of NFT games partnered with sports organizations. “Moments” refer to NFTs that represent NBA player highlights or gameplay.
The decision is not final, and a Dapper Labs spokesperson commented on the ruling, saying that US courts have historically not considered collectibles, including art and basketball cards, as securities under federal law.
The judge cited Dapper Labs’ control over the series through the blockchain and the use of emojis suggesting that NFT values, such as “rockets” or “money bags,” would increase during advertising as the reasons for considering NBA Top Shot Moments as securities.
The judge stated that the fact that “Moments” were distributed through Dapper Labs’ privately developed Flow chain was the basis for a securities contract. The judge further explained that Dapper Labs’ creation and maintenance of a private blockchain were fundamental to the court’s conclusion.
Since the value of the “Moments” was based on Dapper Labs’ private blockchain, and the transactions for “Moments” were restricted to the Flow blockchain, buyers had to depend on the company’s expertise and continued success. This dependency on the issuer’s management efforts is one of the criteria for securities trading under the Howey Test.
While the decision is a significant development in the ongoing debate over whether NFTs are securities, the judge’s ruling is not final. Dapper Labs intends to defend its position vigorously in court while maintaining its belief that the Moments and other collections are not securities, regardless of their digitization.
Read more:
- Solana Mobile Unveils Minty Fresh, A Revolutionary NFT Minting App
- Solana Is Losing Ground Under Its Feet As Developers Are Leaving Network