Dapper Labs Must Face Class Action Alleging Its NBA NFTs Are Securities

This Wednesday, a Federal Court ruled that Dapper Labs must face trial over their NBA “Moments” NFT collection. In 2021 the company became a target of a class action lawsuit alleging that the basketball-themed non-fungible tokens are securities. 

Dapper Labs To Stand Trial Over NBA-themed NFT Collection

According to a ruling on Wednesday, February 22nd, Dapper Labs, the company behind the National Basketball Association-branded NFT collection, Top Shot Moments, will have to stand trial in a class-action lawsuit that was initially filed in 2021. The lawsuit alleges that the non-fungible tokens in question constitute an unregistered securities offering. However, it is noteworthy that the court did not explicitly find that the “Moments” represent securities:

In the most general terms, the Court is asked to assess whether Moments are more like cardboard basketball cards, i.e., commodities, or more like crypto tokens. As the ICO Cases reveal, tokens offered as part of ICOs often bear the hallmarks of a security. Here, it is a close call and the Court’s decision is narrow. If there is a defining line separating those offerings that are securities from those that are not, whether Moments qualify toes that line intimately. Nevertheless, mindful of the purposive nature of Howey, the Court finds that Plaintiffs’ allegations render each consideration under Howey facially plausible and survive Defendants’ Motion to Dismiss the alleged violation of Sections 5 and 12 of the Securities Act.

Dapper Labs moved to dismiss the class-action lawsuit last September stating that the plaintiffs can’t “make a federal securities case over basketball cards.”. The company is well known for its sports-themed collections. Apart from its disputed NBA collection, the firm partnered with Ticketmaster in order to mint NFL-themed non-fungible tokens.

Join our Telegram group and never miss a breaking digital asset story.

Dapper Labs Is Not the Only NFT Firm Facing Unregistered Securities Allegations

While non-fungible tokens have mostly remained out of the limelight when it comes to alleged Securities Act violations, the Securities and Exchange Commission has been engaged in a general probe of the sector. The probe offered its first major development last October when it was revealed that the SEC is investigating Yuga Labs, the company behind the famous Bored Ape Yacht Club.

The probe is twofold as it is simultaneously looking into whether the Bored Apes themselves are securities, as well as into Yuga’s APE tokens. It is important to note, however, that there is no clear precedent for claiming that NFTs are securities. 

On the other hand, considering SEC Chair Gary Gensler’s overall stance on most digital assets, additional probes and enforcement actions can reasonably be expected. Recently, the Commission made aggressive moves against the cryptocurrency industry targeting staking with its settlement with Kraken, and stablecoins with its investigation into the Binance-branded BUSD.

Do you think the case against Dapper Labs could open the floodgates for a regulatory crackdown on the NFT sector? Let us know in the comments below.