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A Dapper Labs lawsuit must proceed after a judge agrees with plaintiffs that NBA Top Shot NFTs appear unregistered securities.
Creator of NBA Top Shot NFTs Dapper Labs and its Chief Executive Officer (CEO) Roham Gharegozlou are the latest blockchain-related companies to face regulatory scrutiny over selling unregistered securities in the United States. The United States financial regulatory agencies have heightened their crackdown on crypto companies thought to sell unregistered securities following the collapse of FTX and Alameda late last year, described as the largest corporate failure in modern American history.
Notably, the NBA Top Shot sells the most incredible and epic NBA moments through NFTs. As of today, the NBA Top Shot NFTs take pride in over 1.5 million users, over 20 million marketplace transactions, and approximately $1 billion in total transactions.
The volume momentum on the NBA Top Shot NFTs has, however, shrunk considerably compared to the early days of deployment. According to aggregate market data provided by Cryptoslam, today’s NBA Top Shot sales volume stands at around $71,113 from about 1,504 buyers and 1,555 sellers. Two years ago, the company’s sales volume and participants were up 10X from today’s figures.
Having created several NBA Top Shot NFTs and sold them to the secondary market through NFT marketplaces, the company is now facing legal litigation similar to the Ripple vs SEC lawsuit. A possible settlement could occur if Dapper Labs is found guilty of selling unregistered securities through the NBA Top Shot NFTs.
Closer Look at NBA Top Shot NFTs Lawsuit
According to Judge Victor Marrero from the United States, despite Dapper Labs’ legal team arguing that the NBA Top Shot NFTs are more or less like Baseball cards or Basketball cards, the case will proceed. The lead plaintiff, Gary Leuis and John Austin accused Dapper Labs and its CEO of violating securities laws through sales of unregistered securities.
“In totality, the economic realities of this case support the Court’s conclusion that the AC’s allegations pass muster at this stage. In sum, Plaintiffs adequately allege that Dapper Labs’s offer of the NFT, Moments, was an offer of an “investment contract” and therefore a “security,” required to be registered with the SEC,” the Judge argued.
Dapper Labs and its CEO are accused of making millions of dollars from selling unregulated securities to the public. The two are also charged with propping up the market for moments and the overall valuation of NBA Top Shot by preventing users from withdrawing their money for months.
The Dapper Labs and its CEO’s legal team argued the sale was a product and not an investment for fundraising.
“When Dapper sold its Moments, it was selling formed products not as part of capital fundraising but as products. This was not a capital investment drive, not an appeal to passive investors, but the sale of cards to collectors,” the legal team noted.