Wednesday, a U.S. district judge dismissed Dapper Labs’ motion to dismiss a complaint alleging that the NBA Top Shots non-fungible token (NFT) collection is unregistered security.
District Judge Victor Marrero noted that Dapper Labs’ NFT collection seems to fit the standards of security under the Howie Test, which is named after a classic U.S. Supreme Court decision to establish whether an asset might be considered a security.
NBA Top Shots was one of the breakout NFT collections in 2021 and is one of the ten best-selling collections of all time. The concept enables users to accumulate “Moments” in the form of National Basketball Association video highlights.
A plaintiff filed a lawsuit against Dapper Labs in May 2021, claiming that the Top Shots collection is unregistered security. By neglecting to register them with the Securities and Exchange Commission (SEC), Dapper Labs violated securities legislation, causing her and other customers injury.
Judge Marrero observed, “If Upper Deck or Topps, two longstanding manufacturers of physical sports trading cards, went out of business, the value of the cards they sold would be unaffected and may even grow, similar to later found paintings.”
Judge Marrero stated that this ruling should not be applied uniformly to all NFTs; rather, each should be evaluated individually.
The development occurs in an era of increased industry scrutiny. The SEC penalized the U.S. cryptocurrency exchange Kraken $30 million in early February for providing staking products, which the agency regards to be securities.
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