On February 22, 2023, a federal judge in the Southern District of New York issued a first-of-its-kind order allowing a securities class action lawsuit to proceed against the issuer of non-fungible tokens (“NFTs”) on the grounds that the NFTs are securities for purposes of federal securities laws. Friel v. Dapper Labs, Inc. et. al., Case No. 1:21-cv-05837-VM (S.D.N.Y). NFTs are digital tokens, frequently associated with digital content, for which ownership of the tokens is recorded on a blockchain. The order was issued in the context of a lawsuit against Dapper Labs, the creator and issuer of NBA Top Shot “Moments.” Moments are digital video clips of NBA game highlights and their associated NFTs minted by Dapper Labs. Moments are offered and sold on Dapper Labs’ proprietary digital platform, validated on Dapper Labs’ private blockchain (the “Flow Blockchain”) and trade on a secondary marketplace controlled by Dapper Labs. The lawsuit claims that Moments are securities and Dapper Labs offered and sold those securities in violation of the registration requirements of the federal securities laws. Dapper Labs filed a motion to dismiss the lawsuit, and the court rejected the motion, concluding that Moments are securities.
Continue Reading A Closer Look: Federal Court Concludes that Certain NFTs May Be Securities: Preliminary Determination in Ongoing NBA Top Shot Litigation