TLDR
- Dapper Labs, the creator of NBA Top Shot Moments NFTs, agreed to a $4 million settlement in a class-action lawsuit alleging that the NFTs were unregistered securities.
- The settlement agreement bars the plaintiffs from claiming that the NBA Top Shot Moments NFTs are securities.
- Dapper Labs will implement mandatory employee training programs focused on compliance with federal securities laws and ethical marketing practices.
- The company will also relinquish control over its remaining FLOW tokens to the Flow Foundation to ensure the decentralization of the Flow ecosystem.
- Dapper Labs and its CEO, Roham Gharegozlou, maintain that the NBA Top Shot Moments NFTs are not securities, and the settlement represents a step toward increased legal clarity on the matter.
Dapper Labs, the company behind the popular NBA Top Shot Moments NFT collection, has reached a tentative settlement agreement worth $4 million in a long-running class-action lawsuit.
The lawsuit, filed in 2021, accused Dapper Labs and its co-founder and CEO Roham Gharegozlou of violating federal securities laws by selling unregistered securities in the form of NBA Top Shot Moments NFTs.
The plaintiffs alleged that the value of the NFTs would increase with the popularity of the project as a whole, essentially making them securities.
They also claimed that Dapper Labs prevented investors from cashing out for “months on end” to keep value locked on the platform, and did not allow Moments to be bought or sold on outside NFT platforms at the time the suit was filed.
Dapper Labs has consistently denied these allegations, arguing that the NBA Top Shot Moments NFTs are essentially digital basketball cards and not securities.
Under the terms of the settlement agreement, the plaintiffs will be barred from claiming that the NFTs are securities, in exchange for the $4 million settlement fund.
The settlement fund will be used to cover payments to the class members, attorneys’ fees, and settlement administrator costs. In addition to the monetary settlement, Dapper Labs has agreed to implement several business changes to address some of the plaintiffs’ concerns.
One of the key changes is the implementation of mandatory employee training programs focused on compliance with federal securities laws and ethical marketing practices.
This move aims to ensure that Dapper Labs adheres to relevant regulations and maintains transparency in its operations.
Dapper Labs has promised to relinquish any control over its remaining FLOW tokens to the Flow Foundation. This step is designed to ensure the decentralization of the Flow ecosystem, which is the blockchain on which the NBA Top Shot Moments NFTs are minted.
Roham Gharegozlou, Dapper Labs’ co-founder and CEO, expressed his satisfaction with the settlement, describing it as a “great start” towards increased legal clarity on whether the company’s NFTs can be classified as securities.
Great news! We @dapperlabs today announced a legal resolution that reaffirms two of our most important positions:
After discovery, it was understood and agreed that @Flow_blockchain is a decentralized public network and that digital collectibles like @NBATopShot are not…
— roham (@roham) June 4, 2024
He also emphasized Dapper Labs’ commitment to pushing for broader regulatory clarity to showcase that consumer NFTs are not financial products and should be regulated under well-established consumer protection regimes at the state level.
While the proposed settlement is between Dapper Labs and investors, and not regulators, Gharegozlou stated that the company is not aware of any regulator, such as the U.S. Securities and Exchange Commission (SEC), claiming that Moments NFTs are securities.
The settlement agreement is yet to be approved by District Court Judge Victor of the Southern District of New York (SDNY). If approved, it would bring an end to the nearly three-year-long legal battle between Dapper Labs and the class-action plaintiffs.
