Dapper Labs has agreed to a $4 million settlement to conclude a class-action lawsuit, affirming that NBA Top Shot nonfungible tokens (NFTs) are not securities, according to CEO Roham Gharegozlou.

A New York District Court filing on June 3 revealed that Dapper Labs settled with a class of investors who sued the company in 2021. The lawsuit alleged that Dapper Labs issued unregistered securities through its NBA Top Shot Moments NFTs.

In a June 4 post on X, Gharegozlou stated that legal discovery determined the NFTs were on “a decentralized public network,” indicating they “are 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 noted.

According to the settlement agreement, Dapper Labs is prepared to pay the $4 million settlement if the plaintiffs, led by Jeeun Friel, agree to cease asserting that the NFTs were securities.

Dapper Labs is also making business changes to decentralize its Flow blockchain. This includes transferring control over any outstanding FLOW tokens to the Flow Foundation and establishing an annual staff training program on federal securities regulations.

Gharegozlou added that Dapper Labs is “not aware of any regulator,” such as the United States Securities and Exchange Commission (SEC), alleging that Moments NFTs are securities. In April, it was reported that the SEC had previously initiated an investigation into Dapper Labs, which was subsequently dropped in September 2023.

Meanwhile, the settlement has yet to be accepted by District Judge Victor Marrero, who denied Dapper’s motion to dismiss the claim in February 2023 after concluding that the NFTs could be considered securities under the Howey test, a legal framework for classifying securities.

Dapper Labs faced a class-action lawsuit in 2021, accusing its flagship product, NBA Top Shot Moments, of being unregistered securities because the value of the NFTs increased with the project’s overall popularity. Plaintiffs also claimed that Dapper Labs blocked investors from cashing out for extended periods to keep funds locked on the platform and that Moments could not be bought or traded on other NFT platforms at the time the lawsuit was filed.

Dapper’s lawyers dismissed these claims, comparing the NFTs to baseball or Pokémon trading cards. The most recent settlement agreement indicates that Dapper Labs allowed other marketplaces to trade the tokens in March 2022, addressing one of the plaintiffs’ concerns.

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