Dapper Labs Reaches $4M Settlement in NBA Top Shot NFT Lawsuit

News | June 11, 2024 By:

On Monday, June 3, 2024, lawyers representing investors who purchased non-fungible tokens from Dapper Labs filed a motion seeking preliminary approval of a $4 million class action settlement in the U.S. District Court for the Southern District of New York.

The class action lawsuit alleged that Dapper Labs, the company behind NBA Top Shot, violated federal securities laws by selling crypto collectibles known as moments without registering them as securities. NBA Top Shot allows users to purchase, trade, and collect video highlights from NBA games in digital form as NFTs on the Flow blockchain.

The initial lawsuit was filed in state court in New York in May 2021 and claimed Dapper Labs’ NFT sales constituted unregistered securities offering under the Howey test established by the Supreme Court. That test determines if an asset exhibits the key characteristics of an investment contract, such as an expectation of profits derived from the efforts of others. Dapper Labs denied the allegations and removed the case to federal court.

Over the next two years, the parties engaged in extensive litigation including a motion to dismiss filed by Dapper Labs which was denied by the court. Discovery involved both sides exchanging documents and interrogatories and multiple meet-and-confers over electronic discovery issues. In January 2024, the parties participated in an all-day mediation with an experienced mediator and ultimately agreed in principle to a $4 million settlement.

Under the proposed settlement, Dapper Labs does not admit any wrongdoing but agrees to establish a settlement fund and implement certain business changes. The lawyers for the plaintiffs will now ask the court to preliminarily approve the settlement and certify the class action for settlement purposes only. A future settlement fairness hearing will be scheduled where final approval will be considered after class members are given notice and the opportunity to object.

If approved, the settlement would resolve claims on behalf of all persons who purchased NFTs called NBA Top Shot Moments from Dapper Labs during the class period. It represents a favorable outcome for investors, avoiding the risks of continuing litigation, given the complex legal issues around whether NFTs and cryptocurrencies constitute securities. The court will review the settlement to ensure it is fair and reasonable.

Please contact BlockTribune for access to a copy of this filing.