Last week, a US District Court in Southern New York passed a ruling stating that flaming rockets , chart stocks , and moneybag emojis implicitly amount to financial advice. The verdict on the 22nd of February, and was presided by District Judge Victor Marrero, is a case between the digital NFTs platform, Dapper Labs, and plaintiffs, Gary Leuis and John Austin, over the determination of securities.
The plaintiffs accused Dapper Labs of unauthorized selling its 2022 NBA Top Shot NFT collections without recourse to proper registration as stipulated in sections 5 and 12 of the Securities Act of 1933. Pointing to tweets by the platform’s official Twitter account, Judge Victor based his 64-paged ruling on the premise that the NFT platform had implicitly informed users of a possible financial profit using all three emojis – even without the literal mention of the word “profit.”
The ruling, many fear, may set an ugly precedent within the crypto space that ultimately boxes NFTs into the category of securities. Dapper Labs had early pleaded for a dismissal of the case, citing uncircumstantial evidence but met resistance from Judge Marrero, who ruled it out, adding that Dapper Labs may have issued the NFT collection in question in a manner that suggests a resemblance to the investment contract stipulations of the 1933 Howey Test. Judge Mario, however, allayed fears of any possible interpretation of NFT as securities adding that all potential NFT disputes will be examined with recourse to their peculiarity.
The CEO of the Canadian-based NFT platform, Roham Gharegozlou, has assured the NFT community that there is still no substantive decision on the case. As such, the chances of going into discovery mode are slim. His reaction comes after reports of an additional 20% staff reduction were made public by the platform. This follows the 22% laid off in November 2022, on the hill of the huge market retrace caused by FTX’s implosion.
The outcome is the latest in a series of legal battles between the SEC and crypto companies. SEC has gone after Paxos for its role in producing non-USD backed $BUSD for Binance as well as Kraken, which shelled out close to $30 million in settlement of fines.