![]() ![]() On February 22, 2023, relying on the “investment contract” analysis in Howey, the Court denied defendants’ motion to dismiss, holding that plaintiffs plausibly alleged that Moments could qualify as securities because the complaint pleaded (1) an investment of money (2) in a common enterprise (3) with the expectation of profit from the entrepreneurial or managerial efforts of others. District Court for the Southern District of New York and then moved to dismiss the complaint. In July 2021, Dapper Labs removed the action to the U.S. Section 12(a)(1) provides a private right of action against issuers of securities for failure to comply with the registration and prospectus requirements of Section 5. Relying on these and other facts, plaintiffs’ complaint alleged Dapper Labs violated Sections 5 and 12(a)(1) of the Securities Act through its unregistered offer and sale of Moments. The complaint alleged that Dapper Labs used its control over the Top Shots platform and Flow Blockchain to prop up Moments’ value, citing to, among other things, certain plaintiffs’ inability to withdraw funds from the platform for up to months at a time. In May 2021, class action plaintiffs sued Dapper Labs and its chief executive officer in New York State Court. Moments can be acquired through “packs” sold directly by Dapper Labs on the Top Shots platform, or individually through secondary sales on the marketplace. Dapper Labs then announced the creation of Moments – NFTs individually marked with unique identifiers that refer to video clip highlights of basketball games. In 2019, Dapper Labs launched the NBA Top Shots (Top Shots) platform on the Flow Blockchain as a joint venture between itself, the National Basketball Association (NBA), and the National Basketball Players Association. ![]() Seeking faster transaction throughput, Dapper Labs later launched its own decentralized “Flow Blockchain” and native FLOW token. In issuing its holding, the District Court found “fundamental” plaintiffs’ assertion that defendants’ maintenance of a private blockchain was required in order to support the sale and ongoing trading of Moments.ĭapper Labs was founded in 2018 shortly after the debut of its first NFT collection, “CryptoKitties,” which was so successful it created a bottleneck of transactions on the decentralized Ethereum Network. ![]() In the decision, the District Court denied defendants’ motion to dismiss a class action complaint that alleged the offer and sale of basketball-themed NFTs (referred to as “Moments”), which resided on a decentralized “private” blockchain and were available only through a centralized platform, qualified as “investment contracts” under the standard set forth by the U.S. ![]()
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