A federal judge in the United States has denied DraftKings’ request to dismiss a class-action complaint brought by purchasers of the company’s Non-Fungible Tokens (NFTs).
The lawsuit alleges that DraftKings, together with its CEO, CFO, and president, have engaged in the sale of NFTs that should be classified as unregistered securities, so contravening federal securities laws.
Justin Dufoe initiated the legal action in March 2023, contending that DraftKings’ NFTs meet the criteria of “investment contracts” according to the Howey Test and therefore be subject to securities regulation.
In 2021, DraftKings introduced the ‘DraftKings Marketplace’ on the Polygon Blockchain. This platform provides digital items associated with sports, entertainment, and culture. Dufoe argues that these NFTs satisfy the requirements of securities according to federal law and accuses DraftKings of willfully vending unregistered securities, resulting in substantial profits.
DraftKings contended that its NFTs do not meet the criteria to be classified as securities and so are not subjected to the regulations outlined in the Securities Act of 1933 or the Securities Exchange Act of 1934.
The motion was dismissed by the U.S. District Court District of Massachusetts on July 2. The court agreed with the plaintiff’s argument that DraftKings’ NFTs could be classified as investment contracts according to the Howey Test.
The court ruled that identifying the primary determinants of the NFT market pricing is a matter of fact, and as a result, the lawsuit will continue, potentially influencing the legal standing of NFTs and the wider sector.
This ongoing legal dispute underscores the intricacies of NFTs and their categorization under securities legislation, potentially establishing significant precedents for the future regulation and trading of NFTs.
