Dapper Labs recently settled a $4 million class-action lawsuit, clarifying that NBA Top Shot nonfungible tokens (NFTs) are not considered securities. The agreement, as stated by CEO Roham Gharegozlou, marks a significant milestone in the company's legal journey. The settlement, documented in a New York District Court filing on June 3, finalized the resolution with investors who had filed a lawsuit in 2021 alleging that Dapper Labs had issued unregistered securities through its NBA Top Shot Moments NFTs.

In a post on June 4, Gharegozlou emphasized that the legal proceedings confirmed the nature of NFTs being on a decentralized public network, establishing that they do not fall under the classification of securities akin to traditional trading cards.

The settlement's terms outline Dapper Labs' commitment to pay the $4 million settlement on the condition that the plaintiffs, led by Jeeun Friel, cease asserting that the NFTs were securities. As part of its strategic shift, Dapper Labs is undergoing business modifications to decentralize its Flow blockchain. This strategic shift involves relinquishing control over outstanding FLOW tokens to the Flow Foundation and implementing mandatory annual staff training programs covering federal securities regulations.

Despite previous regulatory scrutiny, including an investigation by the United States Securities and Exchange Commission (SEC) in 2023, which was later dropped, Gharegozlou stated that there are no current allegations from regulators regarding the NFTs' securities status.

The settlement is pending approval by District Judge Victor Marrero, who previously denied Dapper's motion to dismiss the claim in February 2023. This decision came after the judge indicated that, under the Howey test used for classifying securities, the NFTs could potentially be viewed as securities.

The initial lawsuit against Dapper Labs in 2021 accused the company's NBA Top Shot Moments of being unregistered securities due to the perceived correlation between the NFTs' value and the project's popularity. Allegations also included claims of investors being restricted from cashing out and limitations on trading Moments on other NFT platforms.

Dapper Labs refuted these claims by drawing parallels between NFTs and traditional trading cards like baseball and Pokémon cards. The recent settlement agreement, however, acknowledges Dapper Labs' evolution in granting permission for the tokens to be traded on various platforms, thereby addressing concerns raised by the plaintiffs.