The Southern District of New York recently issued the first opinion addressing whether nonfungible tokens (NFTs) are securities under the Securities Act of 1933. Friel v. Dapper Labs, 2023 WL 2162747 (2023), is important to the NFT industry because the Securities and Exchange Commission has refrained from providing formal guidance on this very question. The procedural posture of the decision, however, including certain oddities underlying its rationale, likely limits its substantive significance.
The court denied Dapper Labs’ motion to dismiss the plaintiff’s claims for failure to register “Moments” NFTs as securities under Section 5 of the Securities Act. Moments are part of “NBA Top Shot,” a blockchain marketplace for digital collectibles established by Dapper Labs and the National Basketball Association. Citing the U.S. Supreme Court’s Securities and Exchange Commission. v. Howey decision, the complaint asserts that Moments are securities because they involve the plaintiffs’ investment of money in a common enterprise with an expectation of profit based on the efforts of others.
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