While Dapper Labs opposed a class action lawsuit claiming NBA Top Shot NFTs were unregistered securities, a US judge ruled that the lawsuit could proceed because the collection “appeared” to meet the Howey test. Is this a precedent for all NFTs
Dapper Labs’ NBA Top Shot collection is the subject of a lawsuit
While it is common to see lawsuits across the Atlantic against various cryptocurrencies that are considered financial securities by the plaintiffs, it is less common for these to involve non-fungible tokens (NFTs). However, it is a similar case that Dapper Labs is facing with the “Moments” of its NBA Top Shot collection.
In fact, this case originated in a class action lawsuit in 2021, in which the plaintiffs felt that NBA Top Shot NFTs did not comply with US securities law and should have been registered as securities.
However, Dapper Labs countered that the complaint was not valid. But this week, U.S. District Judge Victor Marrero ruled that a trial could indeed be held.
No final verdict yet
It is important to note that for the time being, the court has made no ruling, Victor Marrero has simply considered that the said NFTs “seem” to correspond to the criteria of the fetish tool of the American regulators: the Howey test. However, the actual trial has yet to take place, and at this stage, this does not constitute a conviction for Dapper Labs, as the company made clear on Twitter:
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.
– Dapper Labs (@dapperlabs) February 22, 2023
We have detailed the characteristics of the famous Howey test on several occasions. Recently, the CEO of Coinbase, for example, defended staking services against the test, while the recent actions of the Securities and Exchange Commission were only rumours.
But the possibility of NFTs being considered as financial securities is questionable. It could affect all collections in the US, not just Dapper Labs.
Despite this, the company is confident that the lawsuit will be resolved:
“The courts are not the only ones to be concerned about the future of the company.
The courts have repeatedly held that consumer goods, including works of art and collectibles such as basketball cards, are not “securities” under federal law. We are confident that the same is true for Moments and other collectibles, digital or otherwise. “
As regulation intensifies in the US, it will be interesting to watch to see if this case leads to other similar initiatives.