Nikolas Sargeant
Dapper Labs has tentatively agreed to a settlement with investors who sued the NFT company and its co-founder and CEO, Roham Gharegozlou, alleging violations of federal securities laws.
If approved by District Court Judge Victor of the Southern District of New York (SDNY), this settlement will conclude a legal dispute that has spanned nearly three years.
In 2021, the plaintiffs accused Dapper Labs’ NBA Top Shot Moments of being unregistered securities, arguing that the value of these NFTs was tied to the overall popularity of the project. They also claimed that Dapper Labs restricted investors from cashing out for extended periods and did not allow the NFTs to be traded on external platforms when the lawsuit was initiated.
Dapper Labs’ legal team strongly denied that their NFTs constituted securities, describing them instead as digital basketball cards.
The proposed settlement, filed on Monday, would prevent plaintiffs from asserting that their NFTs are securities. In return, Dapper Labs will establish a $4 million settlement fund, covering payments to class members, attorneys’ fees, and settlement administration costs.
Additionally, Dapper Labs has agreed to implement several business changes, including mandatory employee training on compliance with federal securities laws and ethical marketing practices, and faster payment and withdrawal processes.
The company also pledged to transfer control of its remaining FLOW tokens to the Flow Foundation to promote the decentralization of the Flow ecosystem.
Although the settlement is between Dapper Labs and the investors, not regulators, Gharegozlou told CoinDesk that this agreement is a positive step towards clarifying the legal status of NFTs.
“We are continuing to advocate for clear regulatory guidelines to demonstrate that consumer NFTs are not financial products and should be regulated under established consumer protection laws at the state level,” Gharegozlou said. “This includes advocating for federal legislation to ensure that consumer product NFTs, like NBA Top Shot, are not subject to federal financial regulation."
Gharegozlou noted that the company is not aware of any regulator, including the U.S. Securities and Exchange Commission (SEC), claiming that Moments NFTs are securities. He added that the SEC had investigated Dapper Labs but closed the investigation in September 2023.
