Dapper
Labs
has
reached
a
tentative
settlement
agreement
with
a
group
of
investors
who
sued
the
non-fungible
token
(NFT)
company
and
its
co-founder
and
CEO
Roham
Gharegozlou
for
allegedly
violating
federal
securities
laws.
If
approved
by
District
Court
Judge
Victor
of
the
Southern
District
of
New
York
(SDNY),
the
settlement
would
bring
a
nearly
three-year-long
legal
battle
to
an
end.
In
2021,
the
class
action
plaintiffs
accused
Dapper
Labs’
flagship
product
–
the
NBA
Top
Shot
Moments
–
of
being
unregistered
securities
because,
they
said,
the
value
of
the
NFTs
would
increase
with
the
popularity
of
the
project
as
a
whole.
Plaintiffs
also
claimed
that
Dapper
Labs
prevented
investors
from
cashing
out
for
“months
on
end”
to
keep
value
locked
on
the
platform,
and
did
not
allow
Moments
to
be
bought
or
sold
on
outside
NFT
platforms
at
the
time
the
suit
was
filed.
In
subsequent
court
filings,
Dapper
Labs’
lawyers
vehemently
denied
that
their
NFTs
were
securities,
arguing
that
they
were
essentially
digital
basketball
cards.
The
settlement
agreement
filed
Monday
would
bar
the
plaintiffs
from
claiming
that
their
NFTs
are
securities,
in
exchange
for
an
aggregate
settlement
fund
of
$4
million.
According
to
Gharegozlou,
the
money
will
go
towards
payments
to
the
class
members,
attorneys’
fees
and
settlement
administrator
costs.
Dapper
Labs
also
agreed
to
other
business
changes
to
settle
the
suit,
according
to
a
representative
for
the
company,
including
the
implementation
of
mandatory
employee
training
programs
focused
on
“compliance
with
federal
securities
laws
and
ethical
marketing
practices”
and
increased
payment
and
withdrawal
speeds.
Additionally,
Dapper
Labs
promised
to
relinquish
any
control
over
its
remaining
FLOW
tokens
to
the
Flow
Foundation
to
ensure
the
decentralization
of
the
Flow
ecosystem.
Though
the
proposed
settlement
is
between
Dapper
Labs
and
investors,
not
regulators,
Gharegozlou
told
CoinDesk
the
agreement
was
a
“great
start”
towards
increased
legal
clarity
on
whether
the
company’s
NFTs
can
be
classified
as
securities.
“We
are
continuing
to
push
for
more
overarching
regulatory
clarity
to
showcase
that
consumer
NFTs
are
not
financial
products
and,
as
such,
should
be
regulated
under
well-established
consumer
protection
regimes
at
the
state
level,”
Gharegozlou
said.
“This
includes
pushing
for
legislation
at
the
federal
level
that
makes
it
clear
that
consumer
product
NFTs,
such
as
NBA
Top
Shot,
are
not
subject
to
federal
financial
regulation.”
Gharegozlou
added
that
the
company
is
“not
aware
of
any
regulator”
like
the
U.S.
Securities
and
Exchange
Commission
(SEC)
claiming
that
Moments
NFTs
are
securities.
In
April,
Fortune
reported
that
the
SEC
had
at
one
time
launched
an
investigation
into
Dapper
Labs
but
closed
it
in
September
2023.