As a reminder, the aforementioned lawsuit was filed back in 2021 by plaintiffs Gary Leis, June Freel and John Austin. They claimed that Dapper Labs made hundreds of millions of dollars in profits on the sale of sports game memorabilia, with the value of the NFT allegedly being artificially inflated. After the suit is actually approved by a judge, Dapper Labs has 21 days to form its response to the case.

The NBA Top Shot itself is a platform for trading unique non-interchangeable basketball-themed tokens. The NFTs act as videos of popular moments from games in the sport. The project appeared thanks to a partnership between the US National Basketball Association and the developers Dapper Labs, who are also the creators of the legendary CryptoKitties collection. And the platform is powered by the Flow network.

We clarified the actual data: in the last day trading volumes with NBA Top Shot collection amounted to 72 thousand dollars, which is a rather weak result. Also for the day the project representatives sold 1379 people, while the sellers were 1465.

Now the developers have a new reason to worry. According to a judge, their project could be considered securities.

Challenges of regulating digital assets

For the verdict, the judge referred to the Howie test, under which NFTs allegedly might well be considered securities in the context of the Dapper Labs case. Here is the relevant statement.

Ultimately, the court’s conclusion that the Dapper Labs product was an investment contract under the Howey test is provisional. Not all NFTs offered or sold by any company can be considered securities, meaning each such token must be valued separately.

In other words, the court is willing to consider recognising the tokens on NBA Top Shots as securities, which is why it gave the go-ahead to the suit against Dapper Labs. But the judge cautioned that his statement should not be seen as a precedent for other unique tokens. Besides, the NBA Top Shots themselves are not yet classified as securities either. For such a thing to happen, there would have to be an appropriate lawsuit by a regulator of the type the US Securities and Exchange Commission has made. That’s exactly what regulator officials did in December 2020, when they accused Ripple of launching an unregistered security in the form of the XRP token.

Read also: SEC chief threatened to sanction other cryptocurrency platforms after steaking ban on Kraken

A Dapper Labs speaker responded to the developments. He shared his thoughts in an interview with news outlet Cointelegraph.

It is important to note that today’s court ruling only dismissed the defendants’ motion to dismiss the complaint at the pleading stage. It did not uphold the plaintiffs’ case, and it is not the final decision in the case. The courts have repeatedly held that consumer goods like art and collectibles represented by basketball cards are not securities under federal law.

We are confident that the same applies to NFTs and other collectibles – both digital and non-digital. We look forward to defending our position in court as the case progresses.

Advocate Jake Czerwinski considers Judge Marreo’s ruling “absurd”. Here is one of his comments from Twitter.

The judge hasn’t decided anything yet. He allowed the case to go forward after a motion to dismiss because the allegations in the token recognition case were at least “plausible.” This is not a final decision at all.

Czerwinski also made an important argument against setting a precedent for recognising NFT as a security. He continues.

It would turn every major video game developer, event ticketing platform, travel loyalty programme and so on into a company required to report to the US Securities and Exchange Commission.

Larry Chermack, a spokesman for The Block, pointed out the oddity of the situation. He said that in the case of the NBA Top Shot collection there is no profit sharing component of the project between users, that is, its developers are not promising any stable income to participants. Therefore, according to this logic, any collectible cards could be recognized as securities. And such an approach makes no sense.

Attorney Jesse Hines also spoke out about the incident on his Twitter feed and noted that motions to dismiss are “very rarely successful,” because the plaintiff only has to sufficiently substantiate his position to proceed with the case. That is, Dapper Labs already had little chance of preventing the judge’s decision.

Meanwhile, the main US financial regulator, the Securities and Exchange Commission, is not yet up to NFT. Yesterday, its staff objected to a deal for the bankrupt cryptocurrency broker Voyager’s assets to be bought by the Binance exchange. The cryptocurrency exchange became aware of its respective interest in December 2022, with Voyager’s own employees choosing it to be the buyer.

Commission officials have suggested that some parts of the asset restructuring plan for the acquisition of Binance.US could violate securities laws. They have therefore opposed such an initiative.


We believe that regulators and judges are unlikely to recognise NFTs as securities because at least in the case of NBA Top Shot, buyers are not promised a guaranteed return or anything like that. And if the decision is made, the precedent would allow almost every NFT to be recognized as a security, which would mean serious problems for the corresponding trading platforms, among other things. In such a scenario, the developers would clearly not be interested in this jurisdiction and would probably consider relocating to other countries.


Either way, the legal case against the company could become one of the hottest topics of discussion in cryptocurrency enthusiast circles. Follow what’s happening in our millionaire cryptochat.

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