Judge Denies DraftKings’ Motion to Dismiss Lawsuit Over NFT Securities

A US Judge has rejected a motion from DraftKings to dismiss a class-action lawsuit brought by purchasers of the company’s Non-Fungible Tokens (NFTs). The lawsuit alleges that DraftKings, along with its CEO, CFO, and president, violated federal securities laws with their NFT offerings.

DraftKings Alleged of Selling Unregistered Securities

In March 2023, Justin Dufoe filed a class-action lawsuit against DraftKings, accusing the sports betting and fantasy sports company of selling unregistered securities through their NFTs. Dufoe argues that these NFTs qualify as “investment contracts” under the Howey Test.

Judge Denies Draftkings’ Motion To Dismiss Lawsuit Over Nft Securities

DraftKings introduced the ‘DraftKings Marketplace’ in 2021 on the Polygon Blockchain, offering digital collectibles spanning sports, entertainment, and culture. One of their initial NFTs, featuring football player Tom Brady, was sold for prices ranging from $12 to $1,500 each.

Dufoe claims that DraftKings’ NFTs should be classified as securities under federal law and asserts that the defendants knowingly sold unregistered securities, profiting from the sales. DraftKings had sought to dismiss the lawsuit in October by arguing that their NFTs do not fall under securities regulations.

Judge Upholds Lawsuit Against DraftKings Regarding NFT Securities

On July 2, the US District Court District of Massachusetts denied DraftKings’ motion to dismiss the lawsuit. The Plaintiff’s allegations that DraftKings’ NFTs constitute investment contracts and are securities under the Howey test were deemed plausible by the Court.

The Court focused on whether buyers invested in a common enterprise expecting profits derived predominantly from the efforts of others, as outlined in the Howey test. The Plaintiff’s claims regarding the pooling of assets and the expectation of profits were upheld.

Dufoe’s argument that profits were reliant on DraftKings’ efforts and marketing initiatives, positioning the NFTs as investments with potential appreciation, was considered valid by the Court. The legal battle’s outcome could impact the classification and treatment of NFTs within the industry.

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