- A US judge has denied DraftKings’ motion to dismiss a class action lawsuit involving its NFTs
- The lawsuit claims DraftKings’ NFTs are investment contracts and could be securities
- Judge Denise Casper ruled that the NFTs could constitute a security
A US federal judge in Massachusetts has ruled against DraftKings’ attempt to dismiss a class action lawsuit initiated by purchasers of its non-fungible tokens (NFTs). The lawsuit contends that these NFTs are investment contracts, potentially classifying them as securities under US law. The case was filed on behalf of anyone who bought DraftKings NFTs from August 2021 onwards and could lay down a marker in the designation of the digital assets.
Plaintiffs Say That NFTs Were Securities
The class action lawsuit against the fantast sports giant was filed on March 9, 2023, in the US District Court for the District of Massachusetts. The plaintiffs claim that DraftKings’ sports-themed NFTs, offered on the Polygon blockchain, constitute unregistered securities under the Howey test.
The lawsuit, led by plaintiff Justin Dufoe, alleges that these NFTs meet the criteria for being classified as securities, primarily because they involve an investment of money in a common enterprise with an expectation of profit driven by DraftKings’ efforts.
DraftKings filed to have the suit dismissed, but Judge Denise Casper of the US District Court for the District of Massachusetts agreed that there was an investment of money in the manner the plaintiffs contend. She added that the offering aligned with the Howey test, which assesses (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profit primarily from the efforts of others.
The court noted that the value of these NFTs was closely tied to the success of the DraftKings Marketplace, indicating a common enterprise and a shared expectation of profits.
Dapper Labs Settlement Cited
The complaint also emphasizes that DraftKings NFT buyers rely on the company’s significant managerial efforts to generate and sustain profits. This argument is supported by several factors identified by the US Securities and Exchange Commission (SEC) that indicate an expectation of profit from the efforts of others. If certified, it will encompass individuals who purchased or acquired DraftKings NFTs from August 11, 2021, to the present.
This case follows similar legal scrutiny faced by Dapper Labs, which recently settled a $4 million class action lawsuit along similar grounds. Indeed, the DraftKings lawsuit cites Dapper Labs as a carbon copy of its own case, hoping this will increase chances of victory.
