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A federal judge has denied Dapper Labs’ motion to dismiss a class action lawsuit claiming its NBA Top Shot NFTs are securities.
Dapper Labs, the issuer behind the popular NFT collection announced in 2019, will have to continue with the suit, US District Judge Victor Marreo ruled, per the court filing.
The class action suit, filed in 2021, claims the “moments” collection — digital video clips of highlights from NBA games — are securities and that by issuing them, Dapper Labs violated the law.
“An NFT constitutes an investment contract under Howey,” Marreo wrote in the ruling, citing the Howey Test, used to determine whether an asset is a security under US law.
In its motion to dismiss, Dapper Labs alleged the plaintiffs used Dapper’s native FLOW token to “confuse” the court. The NBA moments and FLOW tokens are separate entities, Dapper Labs added.
Marreo agreed that while FLOW and NBA moments are two separate products, Dapper “ignores that FLOW is part of the economic realities of the investment scheme in dispute.”
The case, if it makes it to trial, has the potential to set a precedent for NFTs and securities laws.
The filing comes as crypto classification and ongoing battles with the SEC heat up. Exchange Kraken recently settled for $30 million and agreed to discontinue its staking product after the SEC filing claimed it had offered an unregistered security.
In settlement cases, which could be the end result of this class action against Dapper Labs, it is important to remember that no precedent is set, according to Seth Hertlein, Ledger’s global head of policy.
“The settlement did not create any new rules or law in the United States, and it’s not binding on anyone besides Kraken, who agreed to it,” Hertlein said during a Twitter Spaces with Blockworks. “The scope is actually quite limited.”
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