A class-action lawsuit brought against Dapper Labs for allegedly providing Non-Fungible Tokens [NFTs] without first registering with the US Securities and Exchange Commission was denied dismissal on February 22 by a judge in New York (SEC).
The NBA Top Shot Moments NFT collection was made available without Gharegozlu and Dapper Labs first registering with the SEC, according to the lawsuit.
More than one and a half years after the class action lawsuit was initially filed in New York, a decision on the request to dismiss it has been made. Dapper Labs submitted a motion to dismiss the lawsuit in September 2022, arguing that its assortment of digital basketball cards is not a security.
Although not necessarily securities, the FLOW tokens from Dapper Labs were alleged to be essential to the whole plan at issue. As a result, there is increased concern that the NFT collection “may constitute” securities, which could have an effect on Ripple’s SEC complaint.
Judge Victor Marrero, of the Southern District of New York, issued the following decision:
“The Court finds that Plaintiffs’ allegations render each consideration under Howey facially plausible and survive Defendants’ Motion to Dismiss the alleged violation of Sections 5 and 12 of the Securities Act.”
Plaintiffs asserted that no Flow Blockchain transaction may be validated in the absence of FLOW tokens. In fact, the “Proof-of-Stake” process on the Flow Blockchain needs FLOW to operate and rewards miners for validating transactions. So, by enabling the network to agree on ownership and the cost of each transaction, FLOW’s utility enhances the value of Moments.
Added Judge Marrero:“The Court is persuaded that the [plaintiff’s complaint] adequately alleges pooling to survive the Motion to Dismiss.”
He also highlighted the plaintiffs’ allegations that Dapper Labs had raised money and maintained the value of FLOW tokens using proceeds from the sale of Moments. Furthermore, his interpretation of what Dapper Labs supplied as a Howey investment contract is too limited, and additional NFTs might not be securities.
The legal relationship required for the establishment of an investment contract and, consequently, a security between investor and promoter is created by the unique scheme via which Dapper Labs offers Moments.
The order “only refused our motion to dismiss the complaint at the case’s pleading stage,” according to a tweet from Dapper Labs. The judge did not reach a conclusion that the plaintiffs were correct, and the decision is preliminary to the merits of the case.
Three weeks have now passed since Dapper Labs was given notice of the lawsuit.
James A. Murphy, a legal advisor, claims that the Top Shot NFT ruling solely addresses a move to dismiss the case and makes the supposition that all of its claims are accurate.
Ripple, on the other hand, is in the stage of summary judgment, where the judge looks at the evidence that the parties have given. “Not all NFTs offered or sold by any entity will constitute a security,” the judge noted further.
In addition, the judge observed that Ripple trades on a public blockchain while Top Shots trade on a private blockchain.