$4M Settlement Confirms NBA NFTs Are Not Securities, Says Dapper Labs CEO

A group of investors initiated the lawsuit in 2021, alleging that the firm sold unregistered securities through its NBA Top Shot Moments non-fungible tokens (NFTs).

CEO Roham Gharegozlou claims this settlement confirms that the NBA NFTs do not qualify as securities.

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On June 4, Gharegozlou took to social media to explain that the legal findings established the NFTs as part of "a decentralized public network," thus ensuring they "are not securities in the same way trading cards are not."

The settlement specifies that if the plaintiffs withdraw their claims that the NFTs are securities, Dapper Labs will pay $4 million.

Additionally, the firm must implement changes to ensure its Flow blockchain is sufficiently decentralized. This includes transferring any remaining Flow tokens it controls to the Flow Foundation and introducing an annual training program for staff on federal securities laws.

Despite the agreement, the settlement still requires approval from District Judge Victor Marrero. In February 2023, Judge Marrero denied Dapper Labs' motion to dismiss the lawsuit, suggesting the NFTs might be considered securities:

Rather, it is the particular scheme by which Dapper Labs offers Moments that creates the sufficient legal relationship between investor and promoter to establish an investment contract, and thus a security, under Howey.

Nonetheless, the settlement reinforces Dapper Labs' position that the NBA NFTs are not securities and includes measures to ensure compliance with decentralization and securities laws.

In other news, Dapper Labs has previously collaborated with Disney to create an NFT platform, Disney Pinnacle.

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