Judge Rules NBA Top Shot NFTs may be securities in Dapper Labs case


  • The Court wrote that Dapper Labs’ offer was narrowly defined as an investment contract under Howey.
  • NBA is made available by Dapper Labs and Gharegozlu without prior SEC pre-registration.
  • Judge Marrero disagreed, stating that the utility of FLOW enhances Moments by enabling network consensus on ownership and transaction costs.

On Wednesday, a federal judge ruled that the NBA-branded “Top Shot” NFT sale by Dapper Labs might qualify as securities.

A year and a half before the decision on the request to dismiss, it brought a class-action lawsuit in New York against Dapper Labs and its CEO, Roham Gharegozlu. According to the SEC lawsuit, Gharegozlu and Dapper Labs offered an NFT collection titled “NBA Top Shot Moments” without first registering with the U.S. Securities and Exchange Commission.

Despite the defendants’ requests to dismiss the allegations for contravening Sections 5 and 12 of the Securities Act, the plaintiffs’ claims appear credible. The Supreme Court has ruled that certain transactions qualify as “investment contracts” if they pass the Howey Test. FLOW tokens from Dapper Labs are required for the scheme in question.

Plaintiffs assert they may verify no transaction on the Flow blockchain without FLOW tokens. In a move to dismiss the complaint, Dapper Labs argues that their collection of digital basketball cards is not a security threat. Judge Marrero disagreed, concluding that the utility of FLOW adds value to Moments by enabling network consensus on ownership and transaction costs.

They found that moments had only been purchased as investments because Dapper Labs’ public statements and marketing materials had urged customers to expect profits.

Dapper Labs’ inability to accept the underlying blockchain technology supports the court’s judgment. As a result, the petition for Moments is moot. Dapper Labs’ offer qualified as an investment contract under Howey, making Minute securities that must be registered with the SEC.