U.S. District Court Rules NBA Top Shot Moments NFTs as ‘Securities’


Acknowledge the securitization of NFTs in ‘NBA Top Shot’

On the 22nd, the US District Court for the Southern District of New York ruled that the NFT (non-fungible token) “NBA Top Shot Moments” released by Dapper Labs is a security.

The case is a class action lawsuit filed by Gary Leuis and other plaintiffs against Dapper Labs and its CEO Roham Gharegozlou. It was originally submitted in 2021.

Plaintiffs allege that defendants violated securities laws by selling NFTs known as NBA Top Shot Moments (“Moments”), which are considered securities, without being registered with the U.S. Securities and Exchange Commission (SEC). By the way.

Dapper Labs has appealed to the court to dismiss the entire complaint. This time, the district court judge rejected the defendant’s application for dismissal.

NBA Top Shot is a popular blockchain game based on the US professional basketball league NBA. Card packs are one of the successful examples of NFT games in partnership with sports organizations, such as being sold out immediately after release. A “moment” is an NFT version of a video of an NBA player playing.

Please note that this decision is not final. A Dapper Labs spokesperson commented:

In past cases, US courts have ruled that consumer goods, including works of art and collectibles like basketball cards, are not federal securities.

We believe the same applies to Moments and other collections, digitized or not, and will vigorously defend our position in court as long as this lawsuit continues. To go.

connection: Dapper Labs to officially release BC game “NBA Top Shot” using NFT of US professional basketball players

What are NFTs?

Abbreviation for “Non-Fungible Token”, a digital token that cannot be replaced and has a unique value. In addition to being used for exchanging “digital items” in blockchain games, it is also an epoch-making way for rights holders (creators) in the “secondary distribution market”, which was difficult to achieve with second-hand sales, as well as proof of ownership of high-priced art works. It is also attracting attention as a means of reduction.

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Reason for deeming securities

The district court judge considered Moment to be a security because Dapper Labs had some degree of control over the series through the blockchain after selling the NFTs, as well as the fact that during the promotion, the company used “Rocket” and He pointed out that he used emojis such as “money bag” that suggested that the value of NFTs would increase.

In particular, the judge said that Moment was deployed on FlowChain, a private blockchain developed by Dapper Labs, which constitutes a securities contract. The judge said:

The allegation that Dapper Labs created and maintains a private blockchain is fundamental to the court’s conclusion.

With Dapper Labs making the underlying blockchain of Moment’s value private and limiting Moment transactions to the Flow blockchain, purchasers will be able to share Dapper Labs’ expertise and management efforts with the company’s You must rely on your continued success and existence.

The fact that the purchaser’s profit depends on the management efforts of the company that issued the securities fits the “Howie test,” which defines one type of securities trading.

The judge noted that the ruling does not apply to all NFTs and that each individual case should be evaluated on a case-by-case basis.

What is Howie Test

A test that determines whether a particular transaction falls under one of the securities trading definitions of an “investment contract” in the United States. Derived from the SEC’s lawsuit against WJ Howey. Although this itself is not legally binding, the SEC has taken legal action against multiple ICOs (token sales) based on this test.

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