- A New York judge has rejected Dapper Labs’ motion to dismiss a class action lawsuit against it
- The suit alleges that NBA Top Shot Moments NFTs represent a sale of unregistered securities
- The judge ruled that the NFTS might constitute a security, and ordered a full trial
A New York judge has allowed a class action lawsuit against Dapper Labs over its NBA Top Shot NFT series to proceed to court after he rejected the creator’s attempt to dismiss the case. The plaintiff, Jeeun Friel, claims that Dapper Labs violated securities laws by offering NBA Top Shot Moments to customers without first registering with the Securities and Exchange Commission (SEC), and as such it constituted an unregistered sale of securities. The case could have ramifications for all NFT projects and will have the SEC licking its lips at the potential of having a court case to back up its prosecution efforts in the future.
Buyers Launched Class Action After Value Crashed
The lawsuit was filed in May 2021 on the back of a massive spike and collapse in the floor price of Top Shot NFTs, with Friel one of many disgruntled after the value of their holdings plummeted. To say that they launched the lawsuit in a desperate attempt to get their money back after an unwise investment may or may not be true, but the fact that it came after such a catastrophic loss speaks volumes.
Dapper Labs has been waiting since 2022 for its appeal to be heard, arguing that, “Basketball cards are not securities. Pokemon cards are not securities. Baseball cards are not securities. Common sense says so. The law says so.” However, it seems that District Judge Victor Marrero has disagreed with the Dapper Labs legal team’s definition of securities law however, and ruled that, in fact, NBA Top Shots satisfied enough prongs of the Howey Test to be worth investigating at trial.
This ruling doesn’t mean that Top Shot NFTs are securities, as some news outlets claimed, but rather that Friel’s case was strong enough to believe that they might be securities, but this can only be decided at trial.
SEC Licking Lips Over Case
It won’t just be Friel and the other members of the class action that are licking their lips over the prospect of this going to trial. The SEC will also be delighted with the ruling, because it means that it will be able to sit back and let someone else take the burden and legal costs of a case that will all but define whether NFTs are securities.
Should Judge Marrero decide that NBS Top Shots are securities, the likes of Yuga Labs will be looking nervously over their shoulders.
