Dapper Labs has settled a lawsuit against NBA Top Shot Moments NFT collection for $4 million

What’s new? Dapper Labs has settled a securities laws class action lawsuit involving its NBA Top Shot Moments collection of non-fungible tokens (NFTs). As part of the settlement agreement, Dapper Labs will pay $4 million to the plaintiffs.

Material by The Block

What else is known? In 2020, Dapper Labs launched Flow, a blockchain ecosystem backed by leading sports associations including the NBA, UFC, and NFL. The NBA Top Shot collection launched the same year, featuring short videos of throws and other successful moves by popular players. After its launch, it rapidly gained popularity.

According to CryptoSlam, the monthly trading volume of NBA Top Shots collection tokens peaked at $226 million in February 2021 but has since declined significantly, as has all activity in the NFT sector in general.

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According to the plaintiffs, the collection should have been subject to SEC registration, but the company chose to hide important information about the risks inherent in the securities from investors. The company countered by claiming that NFTs bear more resemblance to collectibles and do not fall under the definition of securities.

The plaintiffs alleged that Dapper Labs made hundreds of millions of dollars from the sale of unregistered securities by artificially inflating the market and preventing users from withdrawing their money for months on end.

During the proceedings, the court last February upheld the plaintiffs’ view, noting that buyers could reasonably expect to profit from the work of third parties because the tokens were issued on a blockchain managed by the company. That statement did not mean the company lost, and the proceedings were continued.

The company said in its statement that the collection became available on four external NFT marketplaces in March 2022, giving collectors more flexibility in asset management.

As part of the agreement, charges were also dropped against Dapper Labs co-founder and CEO Roham Gharegozlou. “We are pleased with the results of today’s settlement, which marks a significant step forward for Dapper Labs and the Flow community,” the senior executive said.

According to the company, the settlement reaffirms the company’s position that NFTs in the collection are not securities under federal law.