Dapper Labs Pays $4M to Prove NBA NFTs Are Not Securities: CEO
NBA Top Shot nonfungible tokens (NFTs) are not securities, according to Dapper Labs' $4 million settlement agreement to end a class-action lawsuit against the company, CEO Roham Garegozlow said.
A June 3 New York District Court filing shows that Dapper Labs has reached a settlement agreement with a class of investors who sued the firm in 2021 for allegedly selling unregistered securities through NBA Top Shot moments NFTs.
In a June 4 X post, Gargozlow said the legal discovery of the issue was that NFTs were found on a “decentralized public network,” meaning that “trading cards are not securities in the same way they are not securities.”
“These were major allegations that we wanted to prove, and continuing to litigate would have been a distraction from our core mission,” he added.
According to the settlement agreement, Dapper Labs, led by Jean Friel, is prepared to pay a $4 million settlement if the plaintiffs agree to drop claims that the NFTs are securities.
Dapper will also consider making business changes to ensure the flow block is sufficiently decentralized and unregulated, including depositing and controlling the remaining flow tokens held by the Flow Foundation.
He also promised to enact a mandatory annual employee training program covering federal securities laws.
The settlement has yet to be approved by District Judge Victor Marrero, who, in February 2023, ruled that Dapper's bid to throw out the lawsuit after finding the NFTs could be considered securities under the Hawaii test — the legal framework for classifying securities.
Related: NFT Trading Volume Falls 54% in May: CryptoSlam
Dapper Labs hit a class suit in 2021, which are NBA NFTs securities because their value will increase as the project gains popularity.
Dapper's lawyers rejected the idea and instead likened NFTs to baseball or Pokemon trading cards.
The group also stated that Dapper would be unable to sell NFTs on other marketplaces, as the final settlement agreement states that Dapper Labs will stop licensing other marketplaces to trade tokens in March 2022.
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