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Class Action Securities Suit Dapper Labs Agrees to $4 million Settlement

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A New York court still needs to approve the settlement.

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A group of investors sued Dapper Labs, a non-fungible token (NFT) company, and its CEO, Roham Gharegozlou, for allegedly breaking federal securities laws. The parties have now reached a tentative settlement agreement.
A nearly three-year-long legal battle would come to an end if District Court Judge Victor of the Southern District of New York (SDNY) approved the settlement.

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The NBA Top Shot Moments, the main product of Dapper Labs, was accused by the class action plaintiffs in 2021 of being an unregistered security because, in their view, the NFTs’ value would rise as the project gained traction. In order to keep value locked on the platform, plaintiffs further asserted that Dapper Labs prohibited investors from cashing out for “months on end” and prohibited Moments from being purchased or sold on external NFT platforms at the time the lawsuit was filed.

Dapper Labs’ attorneys strongly refuted the idea that their NFTs were securities in later court documents, claiming instead that they were simply digital basketball cards.

In return for a $4 million settlement fund, the plaintiffs would not be permitted to assert that their NFTs are securities under the terms of the settlement agreement, which was submitted on Monday. Gharegozlou claims that the funds will cover settlement administrator expenses, legal fees, and payments to class members.

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According to a company representative, Dapper Labs also consented to additional business adjustments in exchange for the settlement, such as the adoption of mandated employee training courses centered on “compliance with federal securities laws and ethical marketing practices” and faster withdrawal and payment processes.

Dapper Labs’ attorneys strongly refuted the idea that their NFTs were securities in later court documents, claiming instead that they were simply digital basketball cards.To further ensure the decentralization of the Flow ecosystem, Dapper Labs further committed to ceding all control over its remaining FLOW tokens to the Flow Foundation.
Gharegozlou told CoinDesk that the agreement was a “great start” towards greater legal clarity regarding whether the company’s NFTs can be classified as securities, despite the fact that the proposed settlement is between Dapper Labs and investors rather than regulators.
“In order to demonstrate that consumer NFTs are not financial products and, as such, should be regulated under well-established consumer protection regimes at the state level,” Gharegozlou stated, “we are continuing to push for more comprehensive regulatory clarity.” “This includes advocating for federal legislation that clarifies that NFTs for consumer products—like NBA Top Shot—are exempt from federal financial regulation.”

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In return for a $4 million settlement fund, the plaintiffs would not be permitted to assert that their NFTs are securities under the terms of the settlement agreement, which was submitted on Monday. Gharegozlou claims that the funds will cover settlement administrator expenses, legal fees, and payments to class members.

According to a company representative, Dapper Labs also consented to additional business adjustments in exchange for the settlement, such as the adoption of mandated employee training courses centered on “compliance with federal securities laws and ethical marketing practices” and faster withdrawal and payment processes.

The business “is not aware of any regulator,” such as the Securities and Exchange Commission (SEC), asserting that Moments NFTs are securities, Gharegozlou continued. Fortune revealed in April that the SEC had previously opened an investigation into Dapper Labs, but it was closed in September 2023.CRYPTOCASTER® - DECENTRALIZED FREEDOM!


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