In a recent class action case, the NBA Top Shot Moments sellers were accused of violating federal securities laws
Plaintiff Jeuun Friel filed the complaint in state court in New York on May 12 against Dapper Labs Inc. and its founder and CEO, Roham Gharegozlou.
Dapper Labs markets NBA Top Shot Moments, which are short videos that depict highlights from NBA games; they are a type of digital asset called non-fungible tokens (NFTs).
Moreover, non-fungible tokens (NFTs) are a form of digital asset that can be used to sell original digital media or art that is one-of-a-kind and cannot be replaced. The NFTs live on the Dapper Labs-created Flow blockchain, an online, decentralized ledger that records NFT transactions.
As per the lawsuit, Dapper Labs had to establish the Flow token in order for the blockchain to work, which the lawsuit alleges “qualifies as a securities offering under the securities laws.”
In addition, the lawsuit admits that Dapper Labs notes on its website that it is committed to “full compliance with securities laws.”
Also, Dapper Labs only allows public sales and auctions to non-US individuals since the Flow tokens are not registered as securities in the United States.
The lawsuit’s primary argument is that the NBA Top Shot is unregistered securities, according to Friel.
The Top Shot Moments
On Oct. 1, 2020, the Top Shot Moments were first made available to the general public as part of an “open beta” program.
When the NBA — the National Basketball Players’ Association — and Dapper Labs all made a deal that a specific NBA game highlight could become a Top Shot Moment, Top Shot was created.
As a result, Dapper Labs then “mints” the highlight into an NFT, resulting in a one-of-a-kind digital asset stored on Dapper’s blockchain.
The minting process can be thought of as imprinting the NFT with its own serial number or barcode, according to the complaint.
“The minting process also creates the beginning of the record associated with the NFT. Ownership, transfers, and prices will be recorded permanently on the blockchain. While editions of Moments are minted from the same basketball chain, NFTs are, by nature, unique.”
Additionally, the NBA Top Shot Moments are sold in three-tiered packs:
- common, which includes nine common Moments with a production of over 1,000 with no limit
- rare, with seven common moments plus one rare moment, and it has a max production of 999
- legendary, with six common moments, one rare, plus one legendary moment with a max production of 99
Dapper Labs also creates scarcity, according to Friel, by distributing the packs in limited drops that “can and do often sell out.”
To sum up, the Top Shot Moments are securities and should have been registered as one with the Securities and Exchange Commission because of this dynamic.
Friel Vs. Dapper Labs
Jeuun Friel is seeking damages in a sum to be decided at trial, a court order ruling the defendants’ conduct to be in breach of federal law, attorney’s fees, pre, and post-judgment interest, as well as “any and all other such relief as the Court may deem just and proper under the circumstances.”
The case was filed in New York County (Manhattan) because the defendants conducted business in this County, have employees based in this County, and in launching NBA Top Shot, have partnered with the NBA, which is based in this County, according to the lawsuit.
Editor’s Note on NBA Top Shot Class Action Lawsuit – Dapper Labs Violating Securities Laws:
This article is published to inform you of the latest class action lawsuit filed against Dapper Labs Inc. and its founder and CEO, Roham Gharegozlou, due to a violation of federal securities laws.
Case Name & No.: Friel v. Dapper Labs Inc. and Roham Gharegozlou, in the Supreme Court of the State of New York, County of New York
Products/Services: Top Shot Moments
Allegations: They allegedly violated federal securities laws
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