The blockchain company behind the National Basketball Association’s (NBA) NFT offering – NBA Top Shot – is set to proceed with a lawsuit claiming the digital collectibles have been running as unregistered securities.
Developer Dapper Labs’s request to drop the 2021 lawsuit has been dismissed by US District Court Judge Victor Marrero after the NBA-themed NFTs are believed to be securities.
Marrero oversaw the ruling and deferred to the Howey Test – a pivotal Supreme Court case which defined whether a transaction qualifies as an ‘investment contract’, and also a security – when overlooking the Dapper Labs lawsuit.
The US District Judge ultimately proceeded to continue the case after he believed it was ‘plausible’ that NBA Top Shot digital collectibles could qualify as a security and would therefore be acting as an unregistered investment contract.
“The Court is persuaded that the [plaintiff’s complaint] adequately alleges pooling to survive the Motion to Dismiss,” the judge wrote.
“As to the allegations here, the Court finds that Defendants’ public statements and marketing materials objectively led purchasers to expect profits,” the judge wrote, using screenshots of Top Shot tweets as examples.
NBA Top Shot launched in 2019 as a joint-venture between the NBA, the NBA Player’s Association, and Dapper Labs.
The NFTs offered of NBA players allows fans to collect, trade and own exclusive digital collectibles and can interact with them, whilst also collecting some of the sport’s most iconic moments in a digital format.
Many NBA players have since invested in the platform, such as those currently playing like Kevin Durant and Klay Thompson.
Despite the Judge’s assertion, Marrero did note that “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 now has three weeks to respond to the latest development in the case.