Judge rules Dapper Labs can’t avoid lawsuit over whether Top Shot NFTs are securities
Dapper Labs must defend against a lawsuit claiming its Top Shot NFTs are securities after a judge refused to dismiss the case on Wednesday.
The lawsuit, filed in 2021, alleges that Top Shot Moments, an NFT compilation containing short clips of NBA highlights, are securities that should have been registered with the Securities and Exchange Commission, according to Bloomberg.
The collection, which was created in partnership with the NBA and the NBA Players Association, rose to popularity as non-fungible tokens became more mainstream in 2021. The NFTs are built on top of Dapper Labs’ Flow Blockchain, and some were sold and resold for hundreds of thousands dollars.
Dapper Labs had asked for the case to be dismissed in September, saying the plaintiffs could not “make a federal securities case out of basketball cards,” according to Reuters. But on Wednesday, US District Judge Victor Marrero said the plaintiffs had presented a strong enough case for the case to move forward, according to Bloomberg.
“Today’s ruling – which the court described as a ‘close call’ – only rejected the defendants’ request to dismiss the complaint at the trial stage. It did not conclude that the plaintiffs were right, and it is not a final decision on the merits of the case,” a spokesperson for Dapper Labs said in a statement to Fortune.
Possibly working against Dapper Labs’ argument is the fact that Top Shot NFTs were limited to the Flow blockchain and, in the judge’s view, dependent on the company’s “continued existence.”
“Dapper Labs maintains private control over the Flow Blockchain, which significantly, if not entirely, dictates Moment’s use and value,” the judge wrote in his decision, one of the first to address the question of whether NFTs are securities, a claim repeated times required against cryptocurrencies.
Last week, the SEC told New York-based crypto company Paxos that it planned to sue the company over its stablecoin, Binance USD (BUSD), which the agency claims is an unregistered security.
As for the case against Dapper Labs, the company said it looks forward to defending its position in court.
“Courts have repeatedly found that consumer goods — including art and collectibles like basketball cards — are not securities under federal law,” a company spokesperson said Fortune. “We’re sure the same is true for Moments and other collectibles, digital or otherwise.”
This story was originally featured on Fortune.com
More from Fortune:
5 Side Hustles Where You Can Make Over $20,000 Per Year – All While Working From Home
Millennials’ average net worth: How the nation’s largest working generation stacks up against the rest
Looking for extra cash? Consider a checking account bonus
This is how much money you need to earn annually to comfortably buy a $600,000 home
