NFTs
Dapper Labs Agrees to $4 Million Settlement of Securities Class Action
Dapper Labs has reached a tentative settlement with a group of investors who sued the non-fungible token (NFT) company and its co-founder and CEO Roham Gharegozlou for allegedly violating federal securities laws.
If approved by the Victor District Court judge for the Southern District of New York (SDNY), the settlement would put an end to a nearly three-year legal battle.
In 2021, class action plaintiffs accused Dapper Labs’ flagship product – NBA Top Shot Moments – being unregistered securities because, they said, the value of NFTs would increase with the popularity of the project as a whole. The plaintiffs also alleged that Dapper Labs prevented investors from withdrawing for “months on end” to keep value locked on the platform and did not allow Moments to be bought or sold on external NFT platforms at the time the lawsuit was filed.
In subsequent court filings, lawyers for Dapper Labs vehemently denied that its NFTs were securities, arguing that they were essentially digital basketball cards.
The settlement filed Monday would prevent plaintiffs from claiming that their NFTs are securities, in exchange for an aggregate settlement fund of $4 million. According to Gharegozlou, the money will go toward payments to class members, legal fees and settlement administration costs.
Dapper Labs also agreed to other business changes to resolve the lawsuit, according to a company representative, including implementing mandatory employee training programs focused on “compliance with federal securities laws and ethical marketing practices.” and faster payment and withdrawal speeds.
Additionally, Dapper Labs has pledged to cede any control over its remaining FLOW tokens to the Flow Foundation to ensure the decentralization of the Flow ecosystem.
While the proposed deal is between Dapper Labs and investors, not regulators, Gharegozlou told CoinDesk the agreement was a “great start” toward increasing legal clarity on whether the company’s NFTs can be classified as securities.
“We continue to push for more comprehensive regulatory clarity to show that consumer NFTs are not financial products and as such should be regulated under well-established consumer protection regimes at the state level,” said Gharegozlou. “This includes pushing for legislation at the federal level that makes clear that consumer product NFTs like NBA Top Shot are not subject to federal financial regulation.”
Gharegozlou added that the company is “not aware of any regulator” like the US Securities and Exchange Commission (SEC) claiming that Moments NFTs are securities. In April, Reported Net Worth that the SEC had previously launched an investigation into Dapper Labs but closed it in September 2023.