Dapper Labs’ class action lawsuit might be nearing its end, as the Vancouver-based blockchain startup has agreed to a $4-million USD settlement with plaintiffs this week.
The lawsuit began in 2021 when a group of investors who bought Dapper Labs’ Moments, which are non-fungible tokens (NFTs) and part of the company’s NBA Top Shot platform, claimed that Moments constitute unregistered securities. The suit, filed in the Southern District of New York, alleged that Dapper Labs violated United States securities law by selling Moments to fans without registering them with regulators.
“Today’s resolution lets us stay focused on what matters – building great experiences for our fans.”
Roham Gharegozlou
At the time, the group of investors also claimed that the blockchain company blocked investors from cashing out for several months, and restricted Moments from being traded on other NFT platforms.
Dapper Labs launched NBA Top Shot in 2020 through a partnership with the National Basketball Association (NBA).
Marketed as a high-tech successor to trading cards, the digital platform allows basketball fans to collect and trade NFTs representing some of the most memorable moments in NBA history using blockchain technology.
In the settlement proposal, filed June 3, Dapper Labs said it continues to deny that it engaged in wrongdoing or violated securities laws. The settlement, which has yet to be approved by the district court judge, would prevent the plaintiffs from calling Top Shot’s NFTs securities.
In a lengthy June 3 post on X, formerly known as Twitter, Dapper Labs CEO and founder Roham Gharegozlou wrote that after the discovery phase of the trial, it was “understood and agreed” that digital collectibles like NBA Top Shot were “not securities in the same way trading cards are not securities.”
“These were the main allegations we wanted to prove, and continuing to litigate would have been a distraction from our core mission,” Gharegozlou wrote.
“Today’s resolution lets us stay focused on what matters—building great experiences for our fans,” he added.
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Established in 2018, Dapper Labs is the creator of the Flow blockchain and several NFT collectible projects, such as CryptoKitties and NBA Top Shot. The startup has secured over $300 million in funding from investors over the years, including Andreessen Horowitz, Google Ventures, Coatue, and Version One Ventures, among others.
Despite a strong early start, Dapper Labs encountered several challenges in recent years, including the class-action lawsuit and the 2022 to 2023 crypto winter. The startup underwent three rounds of layoffs in 2023, resulting in a headcount reduction of over 40 percent between July 2022 and July 2023.
However, this year, crypto has experienced a resurgence, with Bitcoin prices rising and regulators showing signs of warming to the asset class. In his post on X, Gharegozlou mentioned that the startup is “firing on all cylinders,” particularly with its newest game, Fast Break, and NBA Top Shot’s mobile marketplace.
“Beyond our win today, the future of our industry and open digital systems relies on effective communication with policymakers and regulators,” the CEO said. “Dapper Labs will continue to engage at all levels to help ensure sensible approaches to this new technology––which ultimately is much better for both consumers and creators because of its openness, transparency, and auditability.”
Feature image courtesy of Unsplash. Photo by Tingey Injury Law Firm.