Dapper Labs, the owner of NBA-branded NFTs, and its CEO Roham Gharegozlou are facing a lawsuit that alleges its video-based digital collectibles NBA Top Shot Moments are unregistered securities, not fan products.
A motion to dismiss the 2021 lawsuit was denied by U.S. District Court Judge Victor Marrero on Wednesday.
“Plaintiffs adequately allege that Dapper Labs’ offer of the NFT, Moments, was an offer of an ‘investment contract’ and therefore a ‘security,’ required to be registered by the SEC,” the judge wrote in his decision.
“Courts have repeatedly found that consumer goods — including art and collectibles like basketball cards — are not securities under federal law,” Dapper Labs SVP Stephanie Martin told The Verge after the ruling. “We are confident the same holds true for moments and other collectibles.”
The plaintiffs also accuse Dapper Labs of “propping up the market for Moments as well as the overall valuation of NBA Top Shot” and the value of its Flow token by preventing money withdrawals by users.
While the tokens aren’t securities, they were ruled “necessary to the totality of the scheme at issue.”
Marrero added: “Not all NFTs offered or sold by any company will constitute a security, and each scheme must be assessed on a case-by-case basis.”
Dapper Labs has three weeks to respond to the lawsuit.