'Basketball cards are not securities' says NFT maker in bid to nix lawsuit

Mar 12, 2022; San Francisco, California, USA; A view of the NBA logo painted on the sideline at Chase Center. Mandatory Credit: Darren Yamashita-USA TODAY Sports

(Reuters) - NFT creator Dapper Labs urged a Manhattan federal court to toss a lawsuit claiming its NBA Top Shot Moments are securities, saying the plaintiffs can't "make a federal securities case over basketball cards."

The blockchain-based video clips of basketball players were developed as collectables with the National Basketball Association, and bear none of the hallmarks of securities, Dapper Labs wrote in its motion to dismiss the case on Wednesday.

"Basketball cards are not securities. Pokémon cards are not securities. Baseball cards are not securities. Common sense says so. The law says so. And, courts say so," the company said.

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Following the initial coin offering boom, investors started filing lawsuits alleging certain digital assets were unregistered securities that violated U.S. law. Some cases were dismissed; others are still pending.

Moments purchasers sued Dapper Labs and its chief executive Roham Gharegozlou in May 2021, claiming the NFTs were securities as their value is tied to the success of the blockchain they are housed on.

Dapper Labs argued in its motion that the NFTs are distinct collectables, not units of a larger enterprise like securities.

NBA Top Shot was among the first NFT products to take off as the sector gained popularity last year, with monthly sales reaching $232 million in February 2021.

The case is Friel v. Dapper Labs Inc et al, No. 21-CV-05837, U.S. District Court, Southern District of New York.

For Dapper Labs: Kenneth Herzinger, Sean Unger and Erin Zatlin of Paul Hastings

For the NFT owners: Phillip Kim, Laurence Rosen and Michael Cohen of The Rosen Law Firm

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com