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NBA Top Shot Moments NFTs Could Be Considered Securities, Federal Judge Says

In a court filing on February 22, a federal judge Victor Marreo stated that NBA Top Shot Moments nonfungible tokens (NFTs) could be considered a security under US security laws. This comes as Dapper Labs CEO Roham Gharegozlou's motion to dismiss a class-action lawsuit claiming that NBA Top Shot NFTs are securities was denied. The court ruled that Dapper Labs has 21 days to respond to the decision.


The judge reviewed the Howey test to determine whether the NFTs qualified as an investment contract subject to US securities laws. The Howey test determines whether a transaction is an investment contract and therefore considered a security. According to court filings, the judge ruled that it is the particular scheme by which Dapper Labs offers Moments that creates the legal relationship between investors and promoters and establishes an investment contract, which is considered a security under Howey.


“Ultimately, the Court’s conclusion that what Dapper Labs offered was an investment contract under Howey is narrow. Not all NFTs offered or sold by any company will constitute security, and each scheme must be assessed on a case-by-case basis.” - Judge Victor Marreo

The class-action lawsuit was filed in May 2021 by Jeeun Friel, alleging that NBA Top Shot sold NFTs as unregistered securities and intentionally prevented collectors from withdrawing funds to inflate the market value of the platform. The court's ruling means that the case will proceed, and Dapper Labs has 21 days to respond to the decision.


In response to the decision, a spokesperson for Dapper Labs stated that the ruling only denied the motion to dismiss the complaint and is not a final ruling on the merits of the case. The company is confident that Moments and other collectibles are not securities and will defend its position in court.


“Courts have repeatedly found that consumer goods – including art and collectibles like basketball cards – are not securities under federal law. We are confident the same holds true for Moments and other collectibles, digital or otherwise, and look forward to vigorously defending our position in Court as the case continues.” - Dapper Labs Spokesperson

The ruling on NBA Top Shot Moments NFTs has generated significant interest and could have implications for the treatment of other digital assets. The decision is part of a broader debate around whether different digital assets should be considered securities, and the recent settlements and probes by the US Securities and Exchange Commission have added to this conversation. It remains to be seen how the case will play out, but it's clear that the outcome could have far-reaching consequences for the NFT market and beyond. We'll be keeping a close eye on developments as they unfold.

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