DraftKings Agrees to $10 Million Settlement Over NFT Securities Lawsuit

DraftKings Inc. has agreed to a $10 million settlement in response to a class-action lawsuit alleging that its sale of non-fungible tokens (NFTs) violated state and federal securities laws.

The lawsuit, initiated in 2023, argued that DraftKings’ NFTs should have been registered as securities, and the failure to do so constituted a legal violation. The proposed settlement aims to compensate individuals who purchased, held, or sold DraftKings NFTs from August 11, 2021, until the date the judgment is entered.

Classification of NFTs Under Securities Law

This legal challenge is part of a broader trend scrutinizing the classification of NFTs under securities law. The classification of NFTs as securities has significant implications for companies engaging in the creation and sale of these digital assets.

In a related case, a federal judge in Massachusetts ruled that the plaintiffs had plausibly alleged that DraftKings’ NFTs could be considered investment contracts under the Howey test, which determines what constitutes a security. The court noted that, despite the NFTs trading on an independently existing blockchain, all transactions occurred through a marketplace controlled by DraftKings, thereby satisfying certain criteria of the Howey test.

These developments underscore the evolving legal landscape surrounding NFTs and their classification under securities laws. Companies engaging in the creation and sale of NFTs are increasingly facing legal challenges that question whether these digital assets should be regulated as securities.

Tips for Companies Engaging in NFT Creation and Sale

Given the evolving legal landscape surrounding NFTs, companies engaging in the creation and sale of these digital assets should consider the following:

  • Register NFTs as securities if they meet the criteria for investment contracts under the Howey test.
  • Ensure compliance with state and federal securities laws.
  • Develop a comprehensive compliance strategy to address the regulatory requirements for NFTs.

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