A Dapper Labs user is suing platform CEO Roham Gharegozlou for selling unregistered securities. The complaint relates to the NBA Top Shot marketplace.

NBA Top Shot is an NFT marketplace dealing in so-called ‘moments’. Video clips minted as NFTs that can be bought, sold and traded, they grow in value as the platform becomes more successful. According to Jeeun Friel this is the problem — owner Dapper Labs has created expectation of profit among investors in ‘moments’.
The Howey Test will now determine if transactions are ‘investment contracts’, and therefore considered securities. And the allegations don’t end there. The plaintiff has also accused NBA Top Shot of blocking withdrawals in a bid to inflate market value.
Did Dapper Labs’ NBA Top Shot sell “unregistered securities”?
The US Securities and Exchange Commission [SEC] defines ‘investment contracts’ as deals involving a common enterprise, with reasonable expectation of profit .
Although people do see NFTs as investments, hence eye-watering expenditure in the art world, the case against Gharegozlou is complex. Ultimately it asks some big questions about the role of NFTs— cash cow opportunities, or collectibles to treasure?
NBA Top Shot and NFT market strength
Friel’s case rests on the claim NBA Top Shot created expectation of profit, but this is difficult to judge. The Dapper Labs user agreement requires the use of “NFTs primarily as objects of play”. It goes on to specify they should not be considered “for investment or speculative purposes.”
But another key aspect of the case relates to funds. The plaintiff cites a CNN article from April 2021, ‘NBA Top Shot customers can’t get their money out. Experts are confounded.’ The story addresses an apparent halt, or severe delay, in processing withdrawals. NFTEvening then reported on stabilisation across multiple NFT marketplaces following a frenzied first quarter, with NBA Top Shot among those showing revenue fall in the last month.
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As always, make your own research prior to making any kind of investment.