DraftKings Agrees to $10 Million Settlement Over NFT Marketplace Lawsuit

DraftKings has reached a $10 million settlement in a class-action lawsuit concerning its non-fungible tokens (NFTs) sold through its now-defunct marketplace. The lawsuit claimed that these NFTs were unregistered securities, leading to significant financial losses for investors.

Key Takeaways

• DraftKings will pay $10 million to settle claims related to its NFT marketplace.

• The lawsuit alleged that DraftKings NFTs were unregistered securities under U.S. law.

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

• The agreement aims to avoid lengthy litigation and provides compensation to affected investors.

Background of the Lawsuit

In March 2023, a class-action lawsuit was filed against DraftKings by Justin Dufoe, who claimed to have lost approximately $14,000 from trading NFTs on the DraftKings Marketplace. The lawsuit alleged that the NFTs constituted investment contracts, thus qualifying as unregistered securities under the Howey test, a legal standard used to determine what constitutes a security.

The lawsuit named several key figures at DraftKings, including co-founders Jason Robins and Matt Kalish, as well as Chief Transformation Officer Jason Park. The plaintiffs argued that the NFTs lost value after DraftKings shut down its marketplace in September 2023, which they claimed rendered the NFTs worthless.

Court Rulings and Settlement Details

On February 28, 2024, Judge Denise Casper of the U.S. District Court for the District of Massachusetts granted a preliminary settlement motion. The $10 million settlement will be distributed 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 lawsuit, stating that the plaintiffs had adequately alleged that the NFTs were securities. This ruling was significant as it set a precedent for how NFTs could be treated under U.S. securities law.

Implications of the Settlement

The settlement is seen as a way to avoid prolonged litigation, which could have taken years and drained resources for both parties. The class group described the agreement as an “outstanding result,” noting that the settlement amount represents 26% of the midpoint of potentially recoverable damages, which they estimated to be between $18 million and $58 million.

This case is not the first NFT-related lawsuit DraftKings has faced. Earlier in January 2024, the company settled a separate lawsuit with the National Football League Players Association regarding the unauthorized use of NFL player likenesses in NFTs.

Conclusion

The $10 million settlement marks a significant moment for DraftKings as it navigates the complex legal landscape surrounding NFTs and digital assets. As the market for NFTs continues to evolve, this case may influence how similar lawsuits are approached in the future, particularly regarding the classification of digital assets as securities. The outcome underscores the importance of regulatory compliance in the rapidly changing world of digital finance and collectibles.

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.