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    Home » Crypto News » NBA Top Shots NFTs Might Be Securities, Rules Federal Judge in Dapper Lawsuit

    NBA Top Shots NFTs Might Be Securities, Rules Federal Judge in Dapper Lawsuit

    Author: Andrew Throuvalas

    Last Updated Feb 23, 2023 @ 14:44

    Dapper’s basketball-focused digital collectibles may plausibly pass the Howey Test, per a new ruling. 

    Dapper Labs will be forced to face a lawsuit from plaintiffs Gary Leuis and John Austin alleging that the NFT Top Shot NFT Moments on its platform are unregistered securities, following a judge’s refusal to dismiss the case on Wednesday.

    United States District Court Judge Victor Marrero ruled that such NFTs may plausibly qualify as securities under the Howey Test. 

    Are NFTs Securities?

    Per Marreno’s ruling, part of what makes the plaintiffs’ allegations “facially plausible” is that the NFTs in question circulate on the Flow blockchain – a private network developed and maintained by Dapper. Without Dapper’s efforts, such NFTs would theoretically have no value, ticking the final prong of the Howey Test requiring another party’s efforts to uphold an investment’s value.

    “The economic realities and technological interplay between FLOW, the Flow blockchain, and Moments, as alleged by Plaintiffs, are what supports the Court’s conclusions,” read the filing. 

    The Howey Test is a legal standard used since the 1930s for determining what assets constitute securities. It is often invoked by the SEC today when making rulings pertaining to cryptocurrencies and NFTs, of which the agency’s chairman – Gary Gensler – believes a vast majority are securities. 

    Howey requires that an investment be made in a common enterprise, with an expectation of profits based on the efforts of others. The first prong of the test is undoubtedly met given that much money has been spent purchasing Moments NFTs from Dapper, and is disputed by neither the company nor the plaintiffs.

    ADVERTISEMENT

    Conversely, Dapper’s motion to dismiss argued there is no “common enterprise” as the fortunes of each NFT investor have no bearing on other investors, nor the efforts of a central promoter. However, the court determined that the plaintiffs adequately alleged that “purchasers’ fortunes were tied to the overall success of Dapper Labs.”

    The court also agreed that Moments purchases were objectively led to expect profits by Dapper. This includes Tweets from the @NBATopShot account promoting record-breaking NFT sales with “stock chart” and “money bags” emojis attached. 

    No Final Ruling Yet

    Though the judge sided with the plaintiffs in its filing, its case against Dapper is far from over. The order only denied Dapper’s motion to dismiss but is not a final ruling on the case’s merits.

    NBA Top Shots are NFTs containing moments from NBA history stored in a video clip and are often likened to digital trading cards.

    “Courts have repeatedly found that consumer goods – including art and collectibles like basketball cards – are not securities under federal law,” said spokesperson Stephanie Martin said in a statement, according to Bloomberg. 

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    Tags: NFT SEC
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    About The Author

    Andrew Throuvalas
    More posts by this author

    Andrew is a content writer with a passion for Bitcoin. He became familiar with Bitcoin back in 2013, but began diligently studying the blockchain technology and its economic implications in 2017. Ever since, he’s believed in the network’s power to replace the current global monetary system, and provide financial freedom to billions worldwide.
    Contact: Medium | LinkedIn | Twitter

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