On Wednesday, United States District Court Judge Victor Marrero ruled that NBA Top Shot non-fungible tokens (NFTs) may be considered unregistered securities. The case arose in 2021 when an NBA Top Shot collector, Jeeun Friel, sued Dapper Labs for selling NFTs without registering them with the U.S. Securities and Exchange Commission (SEC).
Dapper Labs, the company behind the NBA Top Shot NFTs, attempted to have the case dismissed, but Marrero denied their motion. The judge’s ruling allows the case to proceed, as he believes that NBA Top Shot NFTs could be considered a security.
While the ruling does not apply to the sale and distribution of FLOW, the Flow blockchain’s native cryptocurrency, the Howey Test was applied to the NBA Top Shot “Moments” NFTs. The Howey analysis is what supports the judge’s decision.
In the court filing, Marrero stated, “Although the literal word ‘profit’ is not included in any of the tweets, the ‘rocket ship’ emoji, ‘stock chart’ emoji, and ‘money bags’ emoji objectively mean one thing: a financial return on investment.”
Marrero went on to say that “the court is persuaded that Dapper Labs’s scheme to sell Moments plausibly reflects horizontal commonality by being ‘intertwined with interest in Dapper Labs,’ its burgeoning new blockchain, and the token that ‘powers it all.'”
In response to the ruling, Dapper Labs commented on Twitter, stating that “Courts have repeatedly held that consumer goods – including art and collectibles like basketball cards – are not ‘securities’ under federal law. We’re confident the same holds true for Moments and other collectibles, digital or otherwise.”
The company also noted that the judge’s decision was not a final ruling on the case’s merits and that they believe that the plaintiffs’ claims are not supported by the law.
The NBA Top Shot NFTs have gained significant popularity in recent years, with collectors purchasing and trading these digital assets for high sums of money. The NBA Top Shot “Moments” are unique video clips of memorable NBA plays, such as slam dunks or game-winning shots, that are issued via the Flow blockchain.
The case between Jeeun Friel and Dapper Labs will now proceed, as the court determines whether the NBA Top Shot NFTs are indeed unregistered securities.