‘It would be absurd’ for a US court to rule private NFTs as securities: Lawyer
The Blockchain Association’s legal director says “it would be absurd” for a US court to rule that digital assets on private blockchains are securities, following a federal judge’s decision to allow a lawsuit against Dapper Labs’ NBA Top Shots NFTs.
US Attorney Jake Chervinsky made the comment after federal judge Victor Marreo denied a motion to dismiss a 2021 lawsuit accusing Dapper Labs of selling non-fungible tokens (NFTs) as unregistered securities.
Chervinsky was among a number of attorneys on Twitter to reiterate that the judge’s denial of the motion does not mean a decision has been made on the lawsuit, just that it was “facially plausible.”
“The judge didn’t decide anything. He let the case go past a motion to dismiss because the securities claims were at least ‘plausible,’ an extremely low bar and not a final decision at all,” he explained.
“This dispute aside, it would be absurd if all valuable digital assets stored in centralized databases were securities.”
“This will make every major video game developer, event ticketing platform, travel rewards program, etc. a public reporting company regulated by the SEC,” he explained.
Another US attorney, Jesse Hynes, too weighed into the motion in a Feb. 22 Twitter post, noting that motions to dismiss are “rarely ever successful” because the plaintiff only needs to plead enough evidence for the case to proceed.
“The judge ruled in the Dapper case that the plaintiff presented enough evidence that IF ALL THE ALLEGATIONS ARE TRUE, that there is a securities violation.”
“We are now going into discovery to determine what the real facts are. Once that is done, Dapper will likely file a motion for summary judgment,” the lawyer added.
Meanwhile, another US attorney, James Murphy – known as “MetaLawMan” – noted that the allegations that Dapper Labs issued NBA Top Shot Moments NFTs on a privately run blockchain was a “fundamental” factor behind the court’s decision to deny the motion to dismiss.
This prompted MetaLawMan to suggest that this “could be considered a net positive” for Ripple in its own case against the US Securities Exchange Commission (SEC), because XRP is issued on a public blockchain.
Related: Dapper Labs suspends Russian accounts following new EU sanctions
The class action lawsuit against Dapper Labs was filed in May 2021 by plaintiff Jeeun Friel, who claimed that Dapper Labs sold NFTs as unregistered securities.
Judge Marreo denied the motion to dismiss the lawsuit on February 22. He said that the particular arrangement that Dapper Labs offers Moments NFT possibly creates a sufficient legal relationship between investors and themselves that satisfies the investment contract criteria under the Howey test.
However, the final decision of this case is unlikely to set a precedent for NFTs, as Judge Marreo said that not all NFTs will constitute securities and that each case must be considered on a case-by-case basis.
Shortly after the termination, the Dapper Labs-issued FLOW token fell 6.4% from $1.24 to $1.16 in 15 minutes. However, the FLOW token has since returned to $1.29, according to CoinGecko.
