A federal judge in New York has ruled that non-fungible tokens (NFTs) traded by Dapper Labs’ Top Shot platform, which represent iconic basketball moments, could qualify as securities under existing laws, meaning they should have been pre-registered with the US Securities and Exchange Commission (SEC).
The ruling comes after a class action lawsuit was filed against Dapper Labs alleging that the company violated federal securities laws by trading NFTs without SEC registration. Judge Victor Marrero determined that the plaintiffs’ allegations fit under the Howey Test and were upheld despite a motion to dismiss filed by Dapper Labs.
He also mentioned the role of Dapper Labs’ Flow blockchain network and FLOW tokens, which are not listed as securities but are necessary for the trading of items that do qualify as securities. Dapper Labs filed a motion to dismiss the lawsuit, claiming that the NFTs are not securities, but the judge ruled that the value of the NFT Moments almost entirely derives from Dapper Labs’ continued operation of Flow Blockchain.
The head of the case notes that these rulings could only apply to NFTs in the Moments collection, so other collectibles may not be considered securities. Dapper Labs can still appeal the decision.