NBA Top Shot NFTs Are Plausibly Securities, Judge Rules in Dapper Labs Lawsuit

U.S. District Judge Victor Marrero ruled in a lawsuit against Dapper Labs that NFTs related to NBA Top Shot are likely securities.

On February 22, Marrero refused Dapper’s request to dismiss the lawsuit, state The NFTs provided by Dapper’s platform “plausibly” meet security requirements.

In his ruling, Marrero cited the landmark Supreme Court ruling, the Howkey Test, that determines whether a transaction constitutes an investment contract, a type of security.

The US Supreme Court established the test in 1946 in SEC v. WJ Howey Co. This test has four elements that must be met for a deal to be considered an investment contract.

1. There are money investments.
2. Investment is a common enterprise.
3. You can expect a return on your investment.
4. Expected profits are derived from the efforts of third parties or promoters.

“Courts have repeatedly found that consumer goods, including collectibles such as works of art and basketball cards, are not securities under federal law,” Dapper said. statement I objected.

We believe the same is true for Moments and other collectibles, digital or otherwise, and look forward to vigorously defending our position in court as the lawsuit continues. “

The judge’s ruling lends credence to the theory that the network powering Top Shot is more private than public, and Dapper Labs is likely to refute the ruling.

Dapper Labs created the Flow blockchain to support NBA Top Shots and other initiatives, but the company intended it to be an open, permissionless network with gradually decentralized node operators. rice field. A Dapper representative claimed in late 2021 that Flow is now community-controlled.

However, the judge’s ruling suggests that there is ample evidence against this claim. Judge highlights his Dapper’s control over the NBA Top Shot platform and underlying intellectual property owned by the NBA and the National Basketball Players Association (NBPA). The ruling also provides statements from Dapper Labs and CEO Roham Gharegozlou regarding the market value of Moment and the potential increase in the value of Top Shot NFTs over time. Additionally, the ruling notes that in early 2021, when NBA Top Shot was overwhelmed by user demand, NFT holders were unable to access the market and sell their assets.

Judge Marreo ultimately cautioned against applying his ruling to the broader market for NFTs in general, concluding in his ruling:

“Ultimately, the court’s conclusion that it was the investment agreement under Howey that Dapper Labs offered was narrow,” he wrote. Not all NFTs offered or sold by a company constitute securities and each scheme should be evaluated on a case-by-case basis.