We promised to keep you posted on developments in Friel v. Dapper Labs, a case that could decide whether NFTs -- in particular, Dapper Labs' NBA Top Shot Moments -- are securities under U.S. law.
As of November 30, 2022, Dapper Labs' motion to dismiss the complaint had been fully briefed meaning that, at any moment, a federal district court in NY could issue a decision deciding the fate of NFTs! Here's the quick rundown:
On May 12, 2021, Jeeun Friel filed a putative class action lawsuit against Dapper Labs alleging that the company violated the Securities Act by selling "NBA Top Shot Moments," non-fungible tokens.
On August 31, 2022, Dapper Labs filed a motion to dismiss the complaint. Here's the gist of why Dapper Labs believes Moments are not securities:
Plaintiffs are trying to make a federal securities case over basketball cards. Basketball cards are not securities. Pokémon cards are not securities. Baseball cards are not securities. Common sense says so. The law says so. And, courts say so. Courts recognize that collectibles like art are not securities subject to the federal securities laws. Plaintiffs’ Complaint should be dismissed with prejudice.
On October 31, 2022, Friel opposed the motion, arguing:
Moments are securities because of the many ways in which they are unlike traditional trading cards: They are crypto assets, alienable instantaneously, hyped up as investments, issued exclusively by Dapper Labs that can only be sold on the secondary marketplace that it controls and profits from. Not only does Dapper Labs retain a going interest in the price of Moments, but their price is dependent on Dapper Labs’ ability to succeed in stimulating demand for Moments and growing its fledgling blockchain and ecosystem. Basketball highlights or not, the economic reality is that these are securities.
On November 30, 2022, Dapper Labs filed its reply, rehashing its core arguments and appealing to "common sense":
At bottom, the Court should not be blind to common sense. Dapper sells basketball cards. A basketball card is “not the type of instrument that comes to mind when the term ‘security’ is used and does not fall within ‘the ordinary concept of a security.’” Marine Bank v. Weaver, 455 U.S. 551, 559 (1982).
At this point, the court could schedule an oral argument (as requested by both parties) or jump straight to a written decision. Stand by!