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NBA Top Shot NFTs are securities, judge says in landmark case

Digital NBA trading cards in an image provided by Dapper Labs.Associated Press

The creator of the marketplace for the National Basketball Association’s Top Shots NFTs must face a lawsuit accusing it of selling unregistered securities, after a judge declined to dismiss the complaint.

The suit, filed in 2021, alleges that Dapper Labs violated US securities law by offering Top Shot Moments — digital video clips of highlights from NBA games — without registering them with regulators and used its control over the collectibles to prevent investors from withdrawing their funds.

On Wednesday, US District Judge Victor Marrero denied a request by Dapper Labs to throw out the suit before trial. He found that the plaintiffs had adequately alleged that Moments are securities, under the relevant legal standard, for the case to go forward. Marrero said the trading of Moments is limited to the company’s Flow blockchain and that purchasers therefore rely on Dapper’s expertise and management “as well as its continued existence.”

“Hypothetically, if Upper Deck or Topps, two longtime producers of physical sports trading cards, were to go out of business, the value of the cards they sold would be wholly unaffected, and may even increase, much like posthumously discovered art,” Marrero wrote. “That is not true here, where plaintiffs allege that the pooling of capital generated from the sale of Moments propped up the Flow Blockchain and where the value of Moments is intertwined with the success of that blockchain and Dapper Labs.”


Dapper said the case is far from over.

The judge “did not conclude the plaintiffs were right, and it is not a final ruling on the merits of the case,” spokesperson Stephanie Martin said in a statement. “Courts have repeatedly found that consumer goods – including art and collectibles like basketball cards – are not securities under federal law. We are confident the same holds true for Moments and other collectibles, digital or otherwise, and look forward to vigorously defending our position in court as the case continues.”


The decision appears to be the first addressing whether nonfungible tokens are securities, Marrero said. He cautioned that it doesn’t mean all NFTs are securities and said they must be assessed on a case-by-case basis, and that it is the way Dapper offers Moments that differentiates the assets.

“Dapper Labs maintains private control over the Flow Blockchain, which significantly, if not entirely, dictates Moments’ use and value,” the judge wrote, adding that Dapper “touted Moments as a means for purchasers to realize substantial profits through the low sale prices for packs and marketing of the substantial profits others had made through sale” on Dapper’s proprietary marketplace.

Without Dapper’s “essential efforts in maintaining the Flow Blockchain and Marketplace, Moments would be valueless,” he said.

The case is Friel v. Dapper Labs, 21-cv-5837, US District Court, Southern District of New York (Manhattan).