A federal judge rules that NBA Top Shot Moments NFTs from Dapper Labs are securities.
A federal judge has ruled that the Dapper Labs NFT, NBA Top Shot Moments, is a security. He said that the token meets the requirements to be classified as securities. The judge, Victor Marrero of the District Court for the Southern District of New York, made the ruling, which could be considered a landmark in the lawsuit filed against Dapper Labs.
The ruling implies that a lawsuit filed against the company would proceed unless a last-minute out-of-court settlement occurs.
Ruling focused on NBA Top Shot
However, the ruling was specific to the Dapper Labs NFT, as Judge Victor Marrero did not expand its scope to cover other NFTs, according to a report on the matter. The judge concluded that the determination of whether other NFTs are securities contracts would be considered on a case-by-case basis.
The Wednesday court ruling implies that the class action lawsuit against Dapper Labs may proceed since the court has ruled that the NFT is a security.
The CEO of Dapper Labs, Roham Gharegozlou, had earlier filed a motion asking the court to dismiss the suit. Recall that the lawsuit alleged that his company, Dapper Labs, violated securities law by selling the non-fungible token.
Not all NFTs are securities
NBA Top Shot Moments is a well-known NFT.The court case arose at a time when regulators in the US are increasingly moving against crypto companies. The issue at this point with Dapper Labs is the allegation that it sold unregistered securities, contrary to applicable securities laws in the United States. Also in contention are the disclosures that the company made regarding its NFT sales.
Even though the ruling doesn’t apply to all NFTs, it could signal a trend that will be seen increasingly in the future.
The judge wrote in the court document,
“Not all NFTs offered or sold by any company will constitute a security, and each scheme must be assessed on a case-by-case basis.”
Promoted Top Shots as profitable
As in all cases involving proving whether a contract is a security, the judge referenced the Howey Test. The test generally classifies an investment contract as security if the investor has an underlying expectation of profit as a motive for the investment.
Judge Marrero arrived at a conclusion based on the fact that the company actively promotes “Top Shots Moment.” It is also fully in control of the business of selling the NFT. He also cited posts on the company’s Twitter account, indicating that investors were led to believe that the NFTs would profit them. Images such as rockets, stock charts, and money bags clearly alluded to this.
“Although the literal word “profit” is not included in any of the tweets, the “rocket ship” emoji, “stock chart” emoji, and “money bag” emoji objectively mean one thing: a financial return on investment,” Marrero wrote.
Dapper Labs react to ruling
The ruling implies that the lawsuit filed against Dapper Labs and Gharegozlou in 2021 will proceed.
Reacting to the ruling, Dapper Labs wrote,
“Today’s order in the Friel v. Dapper Labs matter—which the Court described as a “close call”—only denied our motion to dismiss the complaint at the case’s pleading stage. “The judge did not conclude the plaintiffs were right, and it’s not a final ruling on the case’s merits.”
