Dapper Labs Settles $4M Lawsuit Over NBA Top Shot NFTs

On Jun 5, 2024

Dapper Labs, the blockchain company known for its NBA Top Shot collectibles, has agreed to settle a class-action lawsuit for $4 million. The settlement addresses allegations that the company violated securities laws.

Pending court approval, the settlement will compensate claimants and cover legal fees. This agreement is a big step for Dapper Labs as it seeks to resolve ongoing legal uncertainties surrounding its operations.

Background of the Legal Dispute

The lawsuit, filed in the U.S. District Court for the Southern District of New York, argued that NBA Top Shot Moments should be classified as unregistered securities. A federal judge initially supported this claim, suggesting that these NFTs could meet the criteria for securities offerings.

The judge’s decision was partly based on the fact that the NFTs are hosted on the Flow blockchain, which Dapper Labs created and is considered less decentralized than networks like Bitcoin.

As part of the settlement, Dapper Labs has agreed to several business changes. These include transferring FLOW tokens to the independent Flow Foundation and enabling third-party marketplaces to sell Top Shot NFTs.

These measures were already underway before the settlement and were aimed at enhancing market fairness and withdrawal processes.

Roham Gharegozlou, CEO of Dapper Labs, emphasized that the settlement reinforces the company’s stance that NBA Top Shot Moments are not securities.

Great news! We @dapperlabs today announced a legal resolution that reaffirms two of our most important positions:
After discovery, it was understood and agreed that @Flow_blockchain is a decentralized public network and that digital collectibles like @NBATopShot are not…
— roham (@roham) June 4, 2024

He further noted that continuing litigation would have been a distraction from their core mission of building great experiences for fans.

Implications for Dapper Labs and the NFT Market

The legal dispute, which named Dapper Labs and Gharegozlou as defendants, has drawn significant attention. Plaintiffs alleged that Dapper Labs made hundreds of millions of dollars from unregistered securities and restricted users from withdrawing their funds for several months. However, with the recent settlement, Dapper Labs and its CEO appear to be cleared of any wrongdoing.

In addition to settling the lawsuit, Dapper Labs is committed to further decentralizing its Flow blockchain. The company will also establish an annual staff training program focused on federal securities regulations. Gharegozlou noted that they are unaware of any regulatory body, including the SEC, alleging that Moments NFTs are securities.

The NFT market, including NBA Top Shot, has seen fluctuating trading volumes. At its peak in February 2021, NBA Top Shot NFTs reached $226 million in monthly trading volumes, according to Cryptoslam. However, the hype has since diminished, mirroring trends in other major NFT collections.

This settlement marks a critical juncture for Dapper Labs, allowing it to refocus on expanding its offerings and enhancing user experiences without the looming threat of legal challenges.