DraftKings Agrees to $10 Million Settlement in NFT Class-Action Lawsuit

DraftKings has reached a $10 million settlement in a class-action lawsuit concerning its non-fungible tokens (NFTs). The lawsuit, initiated by NFT buyers, claimed that the NFTs sold through DraftKings' now-closed marketplace were unregistered securities under U.S. law. The settlement aims to resolve all claims and distribute funds among affected buyers.

Key Takeaways

• DraftKings will pay $10 million to settle the lawsuit regarding its NFT marketplace.

• The settlement follows a ruling that the NFTs could be classified as securities.

• The lead plaintiff, Justin Dufoe, claims to have lost $14,000 on his NFT investments.

• The settlement is expected to avoid lengthy litigation and provide compensation to affected buyers.

Background of the Lawsuit

In March 2023, Justin Dufoe filed a class-action lawsuit against DraftKings, alleging that the NFTs sold on its platform were investment contracts and thus should have been registered as securities. The lawsuit named several key figures from DraftKings, including co-founders Jason Robins and Matt Kalish, as well as finance chief Jason Park.

The lawsuit claimed that the NFTs were marketed in a way that led buyers to expect profits based on DraftKings' efforts, which is a key criterion under the Howey test for determining whether an asset is a security.

Court Rulings and Settlement Details

On February 28, 2024, Judge Denise Casper of the U.S. District Court for Massachusetts granted a preliminary settlement motion. The $10 million settlement will be divided among the class members, with Dufoe also seeking a $50,000 award for his efforts in litigating the case, along with attorney fees of up to one-third of the settlement fund.

The court had previously denied DraftKings' motion to dismiss the case, stating that the plaintiffs had adequately alleged that the NFTs could be considered securities. This ruling was significant as it set a precedent for how NFTs might be treated under U.S. securities law.

Implications of the Settlement

The settlement comes after DraftKings decided to shut down its NFT marketplace, citing legal challenges as a primary reason. The closure rendered many NFTs sold through the platform effectively worthless, prompting the lawsuit.

The class action settlement is seen as a way to avoid prolonged litigation, which could have drained resources for both parties. The plaintiffs noted that realistic damages could range from $18 million to $58 million, making the settlement amount a reasonable recovery under the circumstances.

Conclusion

This settlement marks a significant moment in the evolving landscape of NFTs and securities law. As the legal framework surrounding digital assets continues to develop, the DraftKings case may serve as a reference point for future litigation involving NFTs and their classification as securities. The outcome of this case highlights the importance of regulatory compliance in the rapidly changing world of digital assets and online marketplaces.

Sources

• Court Declines To Dismiss Securities Class Action Alleging That DraftKings NFTs Are ‘Securities’, Skadden, Arps, Slate, Meagher & Flom LLP.

• DraftKings settles class-action lawsuit over NFT marketplace for $10M, Cointelegraph.