By As Law Online 
The dapper development lawsuit, often referred to in legal and blockchain circles as the class action against Dapper Labs involving NBA Top Shot NFTs, has captured attention for its implications on digital asset regulation. This case centers on allegations that Dapper Labs sold unregistered securities through its NBA Top Shot “Moments” NFTs, potentially violating federal securities laws. With a $4 million settlement approved in October 2024, the resolution provides clarity for NFT issuers while highlighting ongoing debates over how blockchain-based collectibles fit within existing regulatory frameworks. As of early 2026, this settlement marks a pivotal moment for consumers, businesses, and regulators navigating the intersection of technology and securities law. NFT purchasers during the class period may be eligible for compensation, and the outcome could influence future compliance strategies in the rapidly evolving digital economy.
Background & Legal Context
Dapper Labs, a Vancouver-based blockchain company, launched NBA Top Shot in 2020 in partnership with the National Basketball Association (NBA) and the NBA Players Association. The platform allows users to buy, sell, and trade digital “Moments”—NFTs depicting video highlights from NBA games, such as iconic plays or dunks. These Moments are minted on the Flow blockchain, a network developed by Dapper Labs, and traded exclusively on the company’s marketplace initially. The platform quickly gained popularity during the NFT boom, generating millions in sales and attracting investors who viewed Moments as potential appreciating assets.
The dapper development lawsuit originated in May 2021 when a group of investors, led by plaintiff Jeeun Friel, filed a class action in the U.S. District Court for the Southern District of New York (Case No. 1:21-cv-05837-VM). Plaintiffs alleged that Dapper Labs and its CEO, Roham Gharegozlou, violated the Securities Act of 1933 and the Securities Exchange Act of 1934 by offering and selling unregistered investment contracts. This claim hinged on the U.S. Supreme Court’s Howey test from SEC v. W.J. Howey Co. (1946), which defines an investment contract as involving (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) derived from the efforts of others.
In real-world terms, this meant plaintiffs argued that buying Moments was akin to investing in a stock or bond, where value depended on Dapper Labs’ management of the platform, marketplace restrictions, and promotional efforts. For instance, Dapper Labs controlled the supply of Moments, set transaction fees, and marketed the NFTs with language suggesting potential financial gains—factors that could create an expectation of profits driven by the company’s actions rather than market forces alone. The lawsuit also claimed that withdrawal restrictions artificially inflated prices, harming users who couldn’t access funds promptly.
This case built on broader regulatory scrutiny of cryptocurrencies and NFTs. The U.S. Securities and Exchange Commission (SEC) has increasingly applied the Howey test to digital assets, as seen in actions against platforms like Ripple Labs (regarding XRP tokens) and earlier investigations into initial coin offerings (ICOs). Prior rulings, such as the 2018 DAO Report by the SEC, established that decentralized assets could still qualify as securities if centralized control persists. In the NFT space, the dapper development lawsuit was among the first to test whether collectibles like sports highlights could cross into securities territory, especially when tied to a proprietary blockchain and marketplace.
Key Legal Issues Explained
At its core, the dapper development lawsuit revolved around whether NBA Top Shot Moments constituted securities under federal law. Here’s a plain-English breakdown:
- Investment of Money in a Common Enterprise: Plaintiffs contended that buyers invested fiat currency (or cryptocurrency) into Moments, pooling funds that benefited Dapper Labs through fees and ecosystem development. The “common enterprise” was evident in the shared reliance on the Flow blockchain, where Moments’ value was interconnected—rising or falling based on the platform’s overall success.
- Expectation of Profits from Others’ Efforts: Dapper Labs promoted Moments as collectibles with potential resale value, using social media and marketing to highlight price appreciation. Plaintiffs pointed to statements implying growth through the company’s efforts, such as expanding the marketplace or securing NBA licensing. This contrasted with traditional collectibles like baseball cards, where value stems from independent market demand without issuer control.
- Centralization vs. Decentralization: A key defense for Dapper Labs was the platform’s evolution toward decentralization. Initially, Moments could only be traded on Dapper’s marketplace, creating dependency. However, changes like allowing third-party marketplaces reduced this control, potentially weakening the “efforts of others” prong.
Other issues included allegations of market manipulation through withdrawal delays, which allegedly propped up prices during the 2021 NFT hype. Legally, this touched on antifraud provisions under Section 10(b) of the Exchange Act and Rule 10b-5, which prohibit deceptive practices in securities sales.
In practice, these concepts affect everyday users: If NFTs are deemed securities, issuers must register with the SEC, provide disclosures, and comply with investor protections—potentially stifling innovation but safeguarding against scams. For non-lawyers, think of it like buying shares in a startup versus collecting stamps; the former requires regulatory oversight to protect investors from undue risk.
Latest Developments or Case Status
The dapper development lawsuit progressed through several stages. In February 2023, Judge Victor Marrero denied Dapper Labs’ motion to dismiss, ruling that plaintiffs plausibly alleged Moments met the Howey test due to the closed ecosystem and promotional language. This decision was narrow, emphasizing case-by-case analysis for NFTs, but it allowed the case to advance toward discovery.
By June 2024, the parties reached a tentative settlement. Dapper Labs agreed to pay $4 million into a fund for class members, covering claims from purchasers between June 15, 2020, and December 27, 2021. The settlement also required business changes: transferring Flow blockchain control to a decentralized foundation, allowing Moments trading on third-party platforms, improving withdrawal processes, and implementing securities compliance training for employees. These measures addressed centralization concerns without admitting wrongdoing.
The court granted preliminary approval in June 2024 and final approval on October 28, 2024, certifying a class of approximately 33 million Moments. Attorney fees totaled about $1.3 million, with an average recovery of $0.12 per Moment after deductions. As of February 2026, distributions are underway, though appeals remain possible.
Separately, a related privacy lawsuit against Dapper Labs and NBA Properties settled in 2025 for $7.05 million, resolving claims of unauthorized data sharing via Meta’s tracking pixel. This affected over 1.2 million users, with claims due by December 2025.
Who Is Affected & Potential Impact
The primary affected group is the certified class: anyone who purchased or acquired NBA Top Shot Moments during the specified period. Eligible individuals may receive pro-rata payments from the $4 million fund, though amounts are modest due to the large class size. Businesses like NFT platforms, blockchain developers, and sports leagues are also impacted, as the settlement underscores risks of centralized control.
Potential consequences include:
- Consumers: Greater protections against misleading promotions, but possibly higher costs if registration becomes standard.
- Businesses: NFT issuers may decentralize faster to avoid securities classification, as Dapper Labs did by open-sourcing Flow and approving external marketplaces.
- Institutions: Regulators like the SEC could use this as precedent, though the settlement avoids a merits ruling. The Financial Innovation and Technology for the 21st Century Act (FIT21), passed in 2024, aims to clarify digital asset rules, potentially reducing similar lawsuits.
Overall, the outcome could stabilize the NFT market by encouraging compliance, but it might chill innovation if smaller developers face high legal barriers.
What This Means Going Forward
The dapper development lawsuit settlement signals a shift toward maturity in the NFT sector. By committing to decentralization, Dapper Labs sets a blueprint for others: reduce issuer control, enhance transparency, and train on securities laws to mitigate risks. This aligns with broader trends, such as the SEC’s closure of its Dapper Labs investigation in 2023 without charges.
For the industry, it emphasizes the importance of the Howey test in NFT design—avoiding promises of profits tied to issuer efforts. Public interest lies in balancing innovation with investor safeguards; readers should monitor SEC guidance and court rulings in similar cases, like those involving DraftKings or other sports NFTs.
As analysis, this resolution leans toward treating well-decentralized NFTs as commodities rather than securities, fostering growth while addressing past excesses.
Conclusion
The dapper development lawsuit settlement resolves key uncertainties around NBA Top Shot NFTs, offering modest relief to affected purchasers while promoting decentralization in the blockchain space. This case underscores the evolving application of securities laws to digital assets, reminding stakeholders of the need for compliance amid innovation. As regulatory frameworks like FIT21 take shape, staying informed on court decisions and agency actions is essential for consumers and professionals alike. This article is for informational purposes only and does not constitute legal advice; consult a qualified attorney for personal guidance.
Frequently Asked Questions
What was the dapper development lawsuit about?
The lawsuit alleged that Dapper Labs sold NBA Top Shot Moments as unregistered securities, violating federal laws by creating an expectation of profits through company efforts.
Who qualifies for the settlement in the dapper development lawsuit?
Individuals who purchased or acquired Moments from June 15, 2020, to December 27, 2021, are part of the class and may claim from the $4 million fund.
How much will class members receive from the dapper development lawsuit settlement?
After fees and expenses, the average recovery is about $0.12 per Moment, though exact amounts vary based on total claims.
What changes did Dapper Labs agree to in the settlement?
Dapper Labs decentralized the Flow blockchain, allowed trading on third-party platforms, improved withdrawals, and implemented compliance training.
Is the dapper development lawsuit related to the NBA Top Shot privacy settlement?
No, that’s a separate 2025 case settling for $7.05 million over data sharing claims, affecting users who interacted with the platform.
Can the dapper development lawsuit settlement be appealed?
Yes, though final approval was granted in October 2024; any appeals would need to be filed promptly.
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