A U.S. district court judge has rejected Dapper Lab’s motion to dismiss a lawsuit against it. The lawsuit concerns the NBA Top Shot NFTs and alleges that the latter is a security
The NBA Top Shot NFTs, one of the more popular collections on the market, may face some legal issues as one United States judge thinks it could fail the Howey Test. United States District Judge Victor Marrero denied a motion to dismiss a lawsuit against Dapper Labs, which alleged that the NBA Top Shot NFTs are securities.
In a nutshell, the court filing states that the allegation that the NBA Top Shot NFTs could be a security is “plausible.” The court document details the idea clearly, stating,
“Nevertheless, mindful of the purposive nature of Howey, the Court finds that Plaintiffs’ allegations render each consideration under Howey facially plausible and survive Defendants’ Motion to Dismiss the alleged violation of Sections 5 and 12 of the Securities Act.”
It does not state that they are, in fact, securities, but rather that the argument is worth pursuing. It also does not make a statement about whether NFTs, in general, are securities. As such, there doesn’t seem like there is much to worry about just yet.
Court Proceedings Will Move On
Dapper Labs commented on the dismissal of the motion, saying that the judge denied the motion. The studio emphasized that the judge did not say that the plaintiffs were right. It pointed to other consumer collectibles, like baseball cards, which are not considered securities.
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
With the motion dismissed, the lawsuit will proceed. From this point, the case will become more interesting and perhaps have ramifications for the NFT market. The question of whether crypto assets are securities is a significant concern for the community. It will be the subject of many discussions this year.
NBA Top Shot NFTs ‘Plausibly’ a Security, According to Judge
The Howey Test determines whether a financial instrument is a security by running it through four checks. These determine if it is an investment contract. The checks themselves are whether it is an investment of money, in a common enterprise, has the expectation of profit, and is derived from the efforts of others.
The judge stated that the promotion of NBA Top Shot NFTs could plausibly meet those criteria. He noted that the word profit wasn’t used but that emojis such as rocket ships and money bags effectively did the same.
@dapperlabs@NBATopShot Moments are securities, federal judge rules: https://t.co/lZFYZ6nZyi@calchulus#HoweyTest: How the NFT’s marketed & sold matters, not just its product features (royalties, profit shares etc.)
Not ?? ?? ?? advice pic.twitter.com/g07jJltozK
— Seb 3.0 ???? (@0xlawyoor) February 23, 2023
In other words, the NFT collection was straddling the line between a regular NFT collection and an investment contract — at least, this is what the court filing states. The court proceedings will provide additional information regarding the nature of the case and its legal interpretation.
