DraftKings has agreed to a $10 million settlement in response to a class-action lawsuit alleging that its sale of NFTs violated securities laws.
Lawsuit Overview and Settlement
The lawsuit, initiated in 2023, argued that DraftKings’ NFTs should have been registered as securities, and the failure to do so constituted a legal violation. The proposed settlement aims to compensate individuals who purchased, held, or sold DraftKings NFTs from August 11, 2021, until the date the judgment is entered. In support of the settlement’s approval, the plaintiffs described the agreement as the result of 'vigorous litigation and serious, arm’s-length negotiation,' urging the court to deem it 'fair, reasonable, and adequate.'
Legal Classification of NFTs
This legal challenge is part of a broader trend scrutinizing the classification of NFTs under securities law. In a related case, Dufoe v. DraftKings Inc., a federal judge in Massachusetts ruled that the plaintiffs had plausibly alleged that DraftKings’ NFTs could be considered investment contracts under the Howey test, which determines what constitutes a security. The court noted that all transactions occurred through a marketplace controlled by DraftKings, thereby satisfying certain criteria of the Howey test.
Broader Legal Implications
These developments underscore the evolving legal landscape surrounding NFTs and their classification under securities laws. Companies engaging in the creation and sale of NFTs are increasingly facing legal challenges that question whether these digital assets should be regulated as securities. This prompts a reevaluation of business practices and compliance strategies within the burgeoning NFT market.
DraftKings’ class-action settlement and the ongoing legal discourse about NFTs being classified as securities reflect significant shifts in digital asset regulation. These cases raise important questions about the future control and regulation of the NFT market.
