A judge has permitted a case against the person who created Top Shot to continue moving forward, which means that the popular NBA Top Shot NFT trading cards could be considered securities for regulatory purposes in the United States.
A buyer of the NFTs filed a lawsuit against the company that created Top Shot, Dapper Labs, alleging that the company’s refusal to register the NFTs with the Securities and Exchange Commission (SEC) caused financial loss to the buyer as well as other buyers.
The plea made by Dapper Labs to have the lawsuit thrown out was turned down by US District Court Judge Victor Marrero, who has now allowed the case to continue. According to Judge Marrero, the so-called Howey Test, which is frequently utilized to establish whether or not an item is a security, reveals that the NBA Top Shot NFTs may, in fact, be securities.
“A close call”
In a message that was shared on Twitter by Dapper Labs on Wednesday, the company stated that the court had referred to the judgment as a “close call” while also emphasizing that it was “not a definitive ruling on the merits of the case.”
Consumer items, including works of art and collections such as basketball cards, have been found by the courts to not fall under the definition of “security” under federal law on multiple occasions. The team at Dapper Labs continued by saying, “We are certain that the same holds true for Moments and other collectibles, be they digital or otherwise.”
The Top Shot NFT collection was published on the Flow blockchain, which is a network that promotes itself as being “eco-friendly,” open, and permissionless and has more than 11,000 developers developing on it. The Top Shot NFT collection was created by Top Shot NFT.
The court referred to Flow as a “private” network when he was discussing the litigation that was brought before him. This gives the impression that the judge views the blockchain as being highly centralized, and it increases the likelihood that assets that are issued on it will be classified as securities.
It should come as no surprise that Dapper Labs disagrees with the assumption that Flow is a centralized network. The company states on its website that “controlled by a single organization” describes fewer than one-third of the network’s consensus nodes.
The NBA Top Shot NFT collection is currently one of the most sought-after NFT collections with a trading card-based concept available. Every one of the one-of-a-kind NFTs depicts a particular and memorable occasion from the annals of basketball. Late in 2021, digital trading cards were released into the market, and almost immediately, the collection was an enormous success.
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