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In February 2021, an NFT for a 13-second video of a Lebron James dunking a basketball sold for $208,000. Because past and present wilt before Lebron’s greatness; because he contains multitudes. Also because Lebron is a security?  

Fast forward two years.

In a February 22, 2023 Decision and Order, the U.S. District Court for the Eastern District of New York, presiding over the class action brought against Dapper Labs, Inc. and its CEO denied defendants’ motion to dismiss, ruling that plaintiffs plausibly alleged that NBA Top Shot NFTs offered and sold by defendants – called “Moments” – are investment contracts under the Howey test and thus securities under the federal securities laws.1

While recognizing “it is a close call” and emphasizing its decision is “narrow,” the Order noted: “The allegations that Dapper Labs created and maintains a private blockchain is fundamental to the Court’s conclusion.” (Emphasis in original.)

Accepting the factual allegations in the complaint as true (as it must on a motion to dismiss), the Court found:

  • Dapper Labs sold Moments to the public in “packs,” with three pricing tiers, depending on whether the packs contained only Common Moments (NFTs for the same content minted in editions of more than 1,000 with no maximum), Rare Moments (editions of up to 999) or Legendary Moments (editions of up to 99).

  • Dapper Labs owned and operated the NBA Top Shot application via which Moments were sold and the secondary market for their resale, called the Marketplace, was hosted. 

  • Dapper Labs owned and controlled the Flow Blockchain upon which the application was built.

The Court found a “common enterprise” among Moments purchasers because plaintiffs alleged their value depends on the success of Dapper Labs and the Flow Blockchain. Similarly, the Court found purchasers relied on the “efforts of the promoter” because “it is plausible that Moments’ value is derived almost entirely from the continued operation by Dapper Labs of the Flow Blockchain, which enables price transparency… but, perhaps more critically, appears to provide purchasers with the ability to trade at all.”

Finally, the Court found defendants led purchasers to expect profits. In the first instance, by marketing Moments packs based on scarcity. But also through public statements touting sale prices for Moments, including tweets punctuated by 🚀, 📈, and 💰 emojis.


“In the most general terms, the Court is asked to assess whether Moments are more like cardboard basketball cards, i.e., commodities, or more like crypto tokens,” the Court wrote, which seems an odd way of presenting the contrast. Isn’t the question presented whether these tokens are more like collectibles or securities?

The Court rejected defendants’ arguments that the use of blockchain technology should not impact the analysis, finding that, “but for Dapper Lab’s creation, development, and maintenance of the private Flow Blockchain, Moments would have no value.” (Emphasis in original.) In this regard, the Court found, Moments are not comparable to rare collectibles, could not be traded outside of the secondary market operated by Dapper Labs, and all Moments purchasers own, essentially, is the line of code on the Flow Blockchain as no other rights to the image are transferred.2 

Is the Court saying Moments would not have been securities but for the fact that Dapper Labs owned and controlled the only secondary market for them? Or that operating an exclusive secondary market for them would have been fine had they been true collectibles? Both?

What, in the Court’s view, is the line between a rare collectible and a security? Banksy printed Love is in the Air in an edition of 400. Dapper Labs minted a total of 59 NFTs for the Lebron dunk. I think the question itself may be an unhelpful distraction.

Rather, the Court asked whether a “reasonable purchaser” would have been led to expect profits by the promoter which, unfortunately, brings us back to the 🚀, 📈, and 💰 emojis. Would the same tweets have been okay without the emojis? If they had just cited sales prices and statistics? It seems weird that the unseriousness of the tweets could be one of the reasons the Court concluded Moments might be securities.

Here, the Court rejected defendants’ argument that purchasers were motivated by personal use, finding that, at this point in the litigation, none of defendants’ arguments establish that the transactions were “primarily” for commercial (non-investment) purposes. Is that the standard? That it is okay if purchasers are motivated by profit so long as the “primary” motivation is use?3

When all you have is a hammer, everything begins to look like a nail. When all you have is the Howey test… It is early in the litigation yet. Dapper Labs has not yet had the opportunity to develop the factual record. Stay tuned to SKrypto for key developments.  

1 The test first set forth in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), and further refined in its progeny, commonly referred to as the Howey test, asks whether an investor has made an investment of money, in a common enterprise, with an expectation of profit bases on the efforts of the promoter or others.

2 This last bit about not owning the intellectual property rights to the referenced images or videos is true of most NFTs (a notable exception has been the Bored Ape Yacht Club NFT collection), not to mention just about all art sold.

3 We here at SKrypto have been asking the same question in the context of fungible tokens for some time now. See here.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


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Philip Moustakis | Partner

Philip Moustakis is partner in the Government Enforcement & Internal Investigations and Blockchain & Cryptocurrency practice groups. Philip advises companies and individuals on SEC enforcement matters, other regulatory enforcement investigations, internal investigations, and blockchain-based solutions and digital assets.

Philip has represented investment managers and other financial services clients in SEC investigations involving, among other things, insider trading, market manipulation, valuation, fees and expenses, conflicts of interest, breaches of fiduciary duty, whistleblowers, and compliance and supervisory failures. Philip has advised blockchain and cryptocurrency clients on token offerings, non-fungible tokens (NFTs), and the development of decentralized finance (DeFi) solutions. Philip is quoted frequently in the press on securities law issues affecting private fund managers and blockchain companies.