Dapper Labs must face Top Shot securities suit after judge rejects dismissal

A federal judge on February 22, 2023 denied Dapper Labs and Chief Executive Roham Gharegozlou’s motion to dismiss a proposed class action alleging that NBA Top Shot Moments were offered as unregistered securities. The decision allowed the plaintiffs’ Securities Act claims to proceed because their allegations, assumed true at this stage, plausibly described the Moments as investment contracts under the Supreme Court’s Howey framework.

Judge Victor Marrero of the U.S. District Court for the Southern District of New York did not enter a final judgment that Moments were securities, certify a class or find the defendants liable. His order decided a narrower procedural question: whether the amended complaint contained enough factual allegations to survive a motion under Federal Rule of Civil Procedure 12(b)(6).

That distinction mattered. The order supplied one of the clearest federal judicial analyses available by February 22, 2023 of how securities law might apply to an NFT offering, but it did not establish a categorical rule for NFTs.

The alleged scheme, not the token alone

The plaintiffs brought claims under Sections 5 and 12(a)(1) of the Securities Act, plus a control-person claim under Section 15 against Gharegozlou. They alleged that Dapper Labs offered Moments without filing a registration statement with the Securities and Exchange Commission.

Applying Howey, the court examined whether the alleged arrangement involved an investment of money in a common enterprise with an expectation of profits dependent on the essential managerial or entrepreneurial efforts of others. Purchases satisfied the investment-of-money element for pleading purposes. The harder questions concerned commonality and reliance on Dapper Labs.

The court evaluated Moments within the broader Top Shot system. According to the complaint as summarized in the order, Dapper Labs minted Moments, sold randomized packs, operated the secondary marketplace and created the Flow blockchain on which ownership and transactions were recorded. The order also recited an allegation that Dapper Labs collected a 5% fee on marketplace transactions.

Those allegations plausibly connected purchasers’ fortunes to the success of the platform, the court reasoned. The plaintiffs alleged that revenue supported the Flow ecosystem, while Dapper Labs’ control of the blockchain and marketplace made its continued work important to the usefulness and value of Moments. The court also considered alleged marketing that highlighted scarcity and profitable resales.

These were allegations assessed at the pleading stage, not facts established after discovery or trial.

Why the ruling reached beyond Top Shot

The decision mattered institutionally because it rejected the idea that an NFT’s uniqueness or collectible presentation necessarily ended the securities analysis. Marrero instead examined the economic relationship among the digital object, its issuer, the trading venue and the supporting network.

That approach placed particular attention on vertically integrated NFT businesses. An operator that created the asset, maintained important infrastructure, controlled secondary trading, earned transaction fees and promoted resale performance could face a stronger argument that buyers depended on its managerial efforts. For NFT issuers and marketplaces, the ruling demonstrated that platform design and promotional conduct could be as legally significant as the token’s technical characteristics.

The court nevertheless limited its reasoning. It described the conclusion as a close call and emphasized that not every NFT offered or sold by every company would constitute a security. The order focused on the particular scheme alleged against Dapper Labs, including the court’s pleading-stage characterization of Flow as a privately controlled blockchain.

What remained unresolved on February 22

The immediate result was procedural: Dapper Labs and Gharegozlou were directed to answer the amended complaint within 21 days. The plaintiffs still had to produce evidence supporting their allegations, establish any class requirements and prove that the challenged transactions met the securities-law test.

Accordingly, the defensible February 22, 2023 conclusion was not that U.S. law had classified all NFTs as securities. It was that a detailed securities claim involving Top Shot Moments had crossed the threshold into continued federal litigation—and that NFT platforms could not assume a collectibles label would prevent courts from examining their full economic structure.