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Federal Judge Rules NBA Top Shot NFTs as Securities
The lawsuit involving NBA Top Shot ‘Moments’ can continue, and it’s all because of FLOW. Because FLOW is a private blockchain provided by Dapper Labs, trading was limited to only the FLOW blockchain. As a result, the value of Moments was dependent on Dapper Labs’ management efforts to create and sustain value. Let’s take a look at what this means for NBA Top Shot, and the broader NFT space.
The NBA Top Shot Moments Verdict
The case involves a lawsuit filed by investors who purchased NBA Top Shot Moments from Dapper Labs. These investors argue that under US federal law the NFTs constitute “securities”. The court found that the NBA Top Shot Moments NFTs constituted an investment contract and were therefore securities. Furthermore, according to the court, Dapper Labs had devised a plan in which they guaranteed investor profits. Profits were “guaranteed” by selling NFT packs at low prices and advertising the significant profits others have made through selling NFTs on Dapper Labs’ proprietary Marketplace. The court further determined that investors were dependent on Dapper Labs’ managerial efforts to develop the Marketplace and maintain the FLOW blockchain since the NFTs would not exist without those efforts.
How did Dapper Labs respond?
Dapper Labs argued that the NBA Top Shot NFTs were not securities, as the buyers controlled their own portfolios. So the buyers made the decision about which NFTs to buy and trade, and when. However, the court rejected this argument, as Dapper Labs has control over the private blockchain through restrictions on where holders can sell their NFTs. Therefore, buyers did not have the opportunity to trade freely.
What does this mean for NFTs?
This is a significant decision for the NFT area. As private blockchains become more popular for businesses, this ruling highlights the potential risks. Private blockchains pose securities risks to the collection and issuance of tokens, and companies offering NFTs must consider whether their offerings may be subject to securities laws. Finally, the ruling highlights the need to comply with securities laws when offering tokens on private blockchains.
