Nfts
Dapper Labs Agrees to $4 Million Settlement in Securities Class Action Lawsuit
Dapper Labs has reached a tentative settlement agreement with a group of investors who sued the non-fungible token (NFT) company and its co-founder and CEO Roham Gharegozlou for allegedly violating federal securities laws.
If approved by Judge Victor of the District Court for the Southern District of New York (SDNY), the settlement would end a nearly three-year legal battle.
In 2021, the class action plaintiffs accused Dapper Labs’ flagship product – NBA Top Shot Moments – being unregistered titles because, they said, the value of NFTs would increase with the popularity of the project as a whole. The plaintiffs also claimed that Dapper Labs blocked investors from cashing out for “months” to keep the value locked on the platform, and did not allow Moments to be bought or sold on platforms. External NFTs at the time of filing the complaint.
In subsequent court filings, Dapper Labs lawyers vehemently denied that their NFTs were securities, arguing that they were mostly digital basketball cards.
The settlement agreement filed Monday would prohibit the plaintiffs from claiming their NFTs are securities, in exchange for an overall settlement fund of $4 million. According to Gharegozlou, the money will be used to pay class members, attorney fees and settlement administration costs.
Dapper Labs also agreed to other business changes to resolve the dispute, according to a company representative, including implementing mandatory employee training programs focused on “compliance with federal securities laws and practices “ethical marketing” and increased payment and withdrawal speeds.
Additionally, Dapper Labs has promised to cede all control over its remaining FLOW tokens to the Flow Foundation in order to ensure decentralization of the Flow ecosystem.
Although the proposed settlement is between Dapper Labs and investors, not regulators, Gharegozlou told CoinDesk that the agreement is a “good start” toward greater legal clarity on whether the company’s NFTs can be classified as titles.
“We continue to push for clearer regulation to show that consumer NFTs are not financial products and, as such, should be regulated by well-established consumer protection regimes at the state level” , said Gharegozlou. “This includes promoting legislation at the federal level that makes clear that consumer product NFTs, such as NBA Top Shot, are not subject to federal financial regulation.”
Gharegozlou added that the company “is not aware of any regulators” like the U.S. Securities and Exchange Commission (SEC) asserting that NFT Moments are securities. In April, Net worth reported that the SEC had at one point launched an investigation into Dapper Labs but closed it in September 2023.