Some of Dapper Labs’ NFTs might be considered securities, according to a federal judge this month, specifically its NBA Top Shot NFTs.
This news follows a motion to dismiss from the tail-end of a class action lawsuit against the company and Roham Gharegozlu – the company’s CEO. Namely, the suit held that both had violated the country’s federal securities laws by offering its NBA Top Shot Moments NFT series.
By not registering these first with the United States Securities and Exchange Commission, Dapper Labs breached securities regulations according to this suit.
While this was the premise, it was the District Judge’s view that allegations under Howey (test for defining securities) were ‘facially plausible’, which has raised the broader question of these NFTs being securities.
While Dapper Labs’ $FLOW Tokens were not considered securities, they were necessary to the whole issuance process. Dapper Labs had attempted a motion to dismiss at this point, stating that these NFTs were just digital collectables, not securities.
This was dismissed by the presiding judge, however, who added that these digital assets passed the first and second prongs of the Howey test. The first is an investment of money, while the second referred to the common enterprise, which could include the pooling of investor funds, which has occurred in legal cases against Telegram and Kik in the past.
The judge concluded that the purchaser’s fortunes were tethered to Dapper Labs and NBA Top Shot’s broader success. At the same time, the platform’s underlying token would be pooled for longer-term investment, maintenance and fundraising.