Dapper Labs — the crypto company behind NBA Top Shot — has been hit by a class-action complaint in New York claiming its basketball NFTs are really unregistered securities.
The complaint — brought by Rosen Law Firm — represents a former Virginian small business owner who says Dapper Labs caused financial damage to NBA Top Shot buyers.
Rosen said (on the defendant’s behalf) NBA Top Shot sales are unregistered securities offerings because “they constitute an investment… in a common enterprise with a reasonable expectation of profits.”
Lawyers argued NBA Top Shots meet the definition provided by the Howey test:
- Buyers are dependent on Dapper Labs to “maintain the crazed levels of hype” around the NFTs.
- Dapper Labs can determine if and when investors can cash out their Top Shots.
- Insiders hold significant gains “on paper” have been restricted from taking profits.
The complaint mentions in February “NBA Top Shot Moments had reached [a market cap] of $1.9 billion… which is greater than the median value of an NBA Franchise.”
Rosen lawyers claimed many investors have emphasized the similarity between the Top Shot NFT marketplace and traditional securities exchanges.
They also shared quotes from Top Shot’s media coverage: “[Top Shot buyer] Schwarz says that investing in Top Shot Moments is a lot like investing in stocks.”
“There’s a lot of psychology behind it,” he said (via The Verge). “It’s not only about what the best company or best player is. It’s about understanding what’s baked into the price and what other people aren’t seeing.”
Big NBA Top Shot sales are rare
The price of Flow — the native token of the blockchain underpinning NBA Top Shot — has fallen from $25 to $21 since the complaint.
However, the rest of the crypto market is down, too.
Dapper Labs’ Top Shot marketplace is still fielding regular sales. But the last one that came close to $100,000 (a regular occurrence between January and March) was one month ago, according to CryptoSlam.
But whether Rosen’s Top Shot complaint can turn into a successful lawsuit is unclear. Attorneys in sports litigation have said the suit is sure to be dismissed.
Top Shot’s fine print backs this up. It features terms like no “right to have a jury trial,” no right to “class action lawsuits,” and last but not least: “all disputes must be dealt with through binding arbitration.”