A group of investors has settled its class-action lawsuit against Dapper Labs. The suit claimed that Dapper’s “Moments”. NFTs sold through NBA Top Shot on the Flow blockchain — should have been registered as securities under U.S. law. On June 4, 2024, Dapper agreed to pay $4 million into a settlement fund.
The settlement ends a nearly three-year legal battle. The outcome matters because it shows how courts and markets are grappling with whether NFTs. Long treated as “digital collectibles” can be subject to securities laws. For buyers and issuers, it signals that the structure and marketing of an NFT offering can determine its legal status.
How the Lawsuit Started
In May 2021, a class-action complaint was filed against Dapper Labs by a group of purchasers who alleged that NBA Top Shot “Moments” were, in fact, unregistered securities. The complaint argued that by offering and selling these NFTs. Dapper engaged in an “investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others.”
They argued the NFTs met the criteria of an “investment contract” under the legal test from the landmark case SEC v. W. J. Howey Co. — because purchasers invested money in a common enterprise and expected profits derived from Dapper’s efforts.
Customers claimed the closed ecosystem of Flow and the marketplace. They combined with Dapper’s control to create conditions more akin to an investment scheme than mere collectible trading.
However, Dapper countered that the NFTs are like sports trading cards—bought for fun or fandom, not as investments. The company emphasized that holders purchased Moments for their enjoyment and collectible value.
Background: What Are NBA Top Shot and Flow Blockchain
Dapper Labs first made a name for itself with the success of earlier digital-asset ventures. Soon after, it created Flow, a private blockchain, to power NBA Top Shot—a platform where users could buy, sell, and trade Moments, which are highlight clips from NBA games turned into NFTs.
On paper, the NFTs were promoted more like collectible sports cards than investment products. Dapper argued that Moments were digital collectibles people bought for fun or fandom, not for profit. But critics and the plaintiffs contended that marketing and Dapper’s control over Flow and the marketplace made buyers reasonably expect financial gains.
The legal test at the heart of the case was the classic Howey Test, which assesses whether an offer involves money, a common enterprise, expectation of profits, and profits derived from others’ efforts.
Key Allegations
The lawsuit rested on these central claims:
- That NBA Top Shot Moments were offered and sold as unregistered securities.
- That Dapper controlled the Flow blockchain and the marketplace, creating a “common enterprise” among all buyers whose value depended on Dapper’s ongoing management and success.
- That buyers reasonably expected profits, not just collectible fun — a key part of the Howey test.
- That Dapper restricted withdrawals and limited resale at first, which plaintiffs said artificially supported NFT values and kept money locked in the system.
In fact, Dapper disputed these claims. The company maintained that Moments are more like trading cards. It argued that value comes from players’ popularity, plays captured, and general fan demand—not from Dapper’s profits or token sales.
Timeline of the Dapper Development Lawsuit
Early Complaints & Consumer Reports
May 2021 — Plaintiffs filed a class-action complaint alleging that NBA Top Shot Moments were unregistered securities.
Legal Filings & Court Actions
February 22, 2023, A federal judge in the U.S. District Court for the Southern District of New York denied Dapper’s motion to dismiss. So, the court held that the complaint sufficiently alleged that Dapper’s NFTs could qualify as investment contracts under the Howey Test.
Settlement & Approval
- On June 3–4, 2024, Dapper Labs agreed to settle the lawsuit by establishing a $4 million fund to resolve claims.
- As part of the settlement, Dapper committed to significant business changes. following changes are mentioned below:
The Flow blockchain became fully decentralized and permissionless, and Dapper relinquished its control.
NBA Top Shot Moments could be sold and displayed on other marketplaces beyond Dapper’s own.
Dapper corrected past withdrawal delays, updated wallets, strengthened AML/KYC protocols, raised withdrawal limits, and partnered with new payment and custody providers.
Dapper’s leadership transferred its reserve Flow tokens to an independent entity, Flow Foundation.
The company instituted mandatory training for key staff on securities-law compliance and marketing practices.
Current Status
- With court approval, the settlement ends the class-action case. The $4 million fund resolves the claims. The lawsuit is no longer pending.
- The settlement is private — it does not carry precedential weight for other NFT issuers. Courts or regulators may still treat future NFT offerings differently depending on their structure, control, and marketing.
What This Means for NFT Issuers and Buyers
The outcome demonstrates that how an NFT is offered—particularly the control over the blockchain and marketplace, resale restrictions, and marketing — matters for legal classification. For issuers, it sends a warning: if you control the network and marketplace, treat NFT sales like securities. For buyers, it signals a shift: some NFTs may carry legal risks or regulatory scrutiny, mainly if sold as “investments.”
The settlement also suggests a possible roadmap for future NFT issuers: decentralize control, allow open marketplace trading, avoid marketing that implies profit, and ensure compliance with securities laws.
Summary
In short, the Dapper Development lawsuit marks one of the first high-profile cases to challenge the legal status of NFTs under U.S. securities law. The $4 million settlement resolves that particular dispute. It does not declare that all NFTs are securities. However, the case shows that certain NFTs — depending on how they are structured, marketed, and controlled — can raise valid securities concerns.
Disclaimer: All information in this article is taken solely from verified public sources. Nothing is based on assumptions or speculation.
