Dapper Labs Settles Class Action Lawsuit Involving NBA Top Shot NFT for $4 Million

Dapper Labs, the company behind the NBA Top Shot Moments, has reached a tentative settlement agreement with the plaintiffs who alleged that the company had violated federal security laws. According to the agreement, the company decided to settle the lawsuit for $4 million asking the plaintiffs to withdraw their claim that NBA Top Shot NFTs are securities.    

Background of the Lawsuit

The Friel Vs. Dapper Labs’ class action lawsuit against Dapper Labs and its co-founder and CEO Roham Gharegozlou started in 2021 when the plaintiffs filed the case with the U.S. District Court for the Southern District of New York. They accused Dapper Labs of making hundreds of millions of dollars in profit by selling unregistered securities. Additionally, they claimed that the company prevented investors from withdrawing their funds for months on end and propped up the market by preventing investors from cashing out.    

Terms of the Settlement 

If the agreement is approved, the $4 million settlement fund will go towards class members, attorney’s fees, and settlement administrator costs. Furthermore, Dapper Labs has also agreed to certain business changes demanded by the plaintiffs as a condition for the settlement.  

The demands included implementing mandatory employee training programs focused on compliance with federal securities laws and ethical marketing practices. Others included relinquishing any control over its FLOW tokens to the Flow Foundation, increasing withdrawal speeds, and allowing third-party marketplaces to transact Top Shot NTFs.  

Dapper Labs CEO Statement 

Roham Gharegozlou said in a statement that they were pleased with the settlement’s results and that it marked a significant step forward for Dapper Labs and the Flow community. He also said that they are continuing to push for more overarching regulatory clarity to showcase that consumer NFTs are not financial products.  

Last year, the federal judge overseeing the case ruled that the lawsuit could proceed because the Top Shot NFTs “plausibly” met the definition of securities, but now the judge ruled in favor of Dapper Labs.