Dapper Labs, the company behind the popular non-fungible token (NFT) collection, NBA Top Shot, has been denied its request to dismiss a lawsuit alleging that the collection is an unregistered security.
District Judge Victor Marrero ruled that the NBA Top Shot collection appears to meet the requirements of a security under the Howie Test. The collection allows users to collect video highlights from the National Basketball Association in the form of NFTs called “Moments”.
The lawsuit was filed in May 2021 by a plaintiff who claimed that the Top Shots collection violated securities law by not registering them with the Securities and Exchange Commission (SEC).
Judge Marrero stated that the pooling of capital generated from the sale of Moments helped prop up the Flow Blockchain, and the value of Moments was intertwined with the success of that blockchain and Dapper Labs.
He added that this decision should not be applied broadly to all NFTs and should be assessed on a case-by-case basis.
This ruling comes as the SEC continues to increase scrutiny in the industry, as seen by the $30 million fine imposed on US crypto exchange Kraken for offering staking products.
