Dapper Labs has agreed to a $4 million settlement to resolve a class-action lawsuit, signaling that NBA Top Shot nonfungible tokens (NFTs) are not considered securities, as stated by CEO Roham Gharegozlou. The filing in the New York District Court on June 3 revealed that Dapper Labs reached an agreement with a group of investors who sued the company in 2021 for allegedly selling unregistered securities through NBA Top Shot Moments NFTs.
In a post on June 4, Gharegozlou emphasized that the legal discovery in the case confirmed that the NFTs exist on a decentralized public network, distinguishing them from securities like trading cards. “These were the key allegations we aimed to disprove, and pursuing further litigation would have diverted us from our primary mission,” he explained.
The settlement stipulates that Dapper Labs will pay the $4 million settlement if the plaintiffs, led by Jeeun Friel, agree to cease claiming that the NFTs are securities. Additionally, Dapper Labs will make operational changes to ensure that its Flow blockchain is sufficiently decentralized and beyond its direct control. This includes transferring any remaining Flow (FLOW) tokens to the Flow Foundation and implementing an annual staff training program on federal securities laws.
Although the settlement is pending approval from District Judge Victor Marrero, who previously rejected Dapper’s motion to dismiss the suit, citing the potential classification of NFTs as securities under the Howey test, a legal standard for securities classification.
The class-action lawsuit against Dapper Labs, filed in 2021, alleged that NBA NFTs were securities due to their perceived price increase with project popularity. Dapper Labs refuted the claim, likening the NFTs to traditional trading cards like baseball or Pokémon cards. The settlement agreement also addressed claims that Dapper Labs restricted the resale of NFTs on other platforms, confirming that permissions were granted to other marketplaces to trade the tokens as of March 2022.
In related news, an article in NFT Collector magazine highlights the impressive NFT collection of DCinvestor, pondering whether it is the best NFT collection globally.