Dapper Labs and a group of investors have come to a potential settlement agreement after the investors sued the NFT company and its co-founder and CEO, Roham Gharegozlou, on accusations of violating federal securities laws.

The settlement, if accepted by District Court Judge Victor from the Southern District of New York (SDNY), would put an end to a legal dispute that has lasted almost three years.

Dapper Labs' flagship product, the NBA Top Shot Moments, faced allegations of being unregistered securities by class action plaintiffs in 2021. They argued that the NFTs' value would rise along with the project's popularity. Additionally, the plaintiffs accused Dapper Labs of restricting investors from withdrawing their funds for an extended period and not allowing Moments to be traded on external NFT platforms at the time of the lawsuit.

Dapper Labs' legal team strongly refuted any claims that their NFTs could be considered securities in later court documents, contending that they are essentially akin to digital versions of basketball cards.

On Monday, a settlement agreement was submitted which would prohibit the plaintiffs from making any claims that their NFTs are considered securities. In return, they will receive a settlement fund of $4 million. According to Gharegozlou, the funds will be allocated for class members' payments, legal fees, and costs for the settlement administrator.

According to a spokesperson for the company, Dapper Labs has also accepted other modifications to their business operations in order to resolve the lawsuit. These changes include the implementation of compulsory training programs for employees, which will concentrate on adhering to federal securities laws and ethical marketing standards, as well as improving payment and withdrawal processing times.

The Transformation of Dapper Labs' NFT Ecosystem

Dapper Labs has made a commitment to transfer all control of its remaining FLOW tokens to the Flow Foundation, in order to promote decentralization within the Flow ecosystem.

Dapper CEO Roham Gharegozlou stated that the agreement between Dapper Labs and investors, rather than regulators, is a positive step towards obtaining more legal clarity regarding the classification of the company's NFTs as securities.

Further, he emphasized that Dapper is persistently advocating for greater regulatory transparency to demonstrate that consumer NFTs should not be considered as financial products. Instead, they should fall under the jurisdiction of established consumer protection laws at the state level. This involves advocating for federal legislation that explicitly states that consumer product NFTs, like NBA Top Shot, are not subject to financial regulations at the federal level.

“After discovery it was understood and agreed that @Flow_blockchain is a decentralized public network and that digital collectibles like @NBATopShot are not securities in the same way trading cards are not securities.” - Roham Gharegozlou, Co-Founder & CEO of Dapper