DraftKings Reaches $10 Million Settlement in NFT Class-Action Lawsuit
Apr 1
2 min read
DraftKings, the prominent sports betting and gaming company, has agreed to a $10 million settlement in a class-action lawsuit concerning its non-fungible token (NFT) marketplace. The lawsuit, initiated by buyers of DraftKings NFTs, alleged that the tokens were unregistered securities, leading to significant financial losses for investors.
Key Takeaways
DraftKings will pay $10 million to settle claims from NFT buyers.
The lawsuit claimed NFTs were unregistered securities under U.S. law.
The settlement follows the closure of DraftKings' NFT marketplace.
The case highlights ongoing legal scrutiny of NFTs and their classification as securities.
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 his investments in the company's NFTs. The lawsuit argued that the NFTs sold through DraftKings' marketplace constituted investment contracts, thus qualifying as unregistered securities under the Howey test, a legal standard used to determine what constitutes a security.
The lawsuit gained traction after a federal judge in Massachusetts ruled that the NFTs could indeed be classified as securities, which prompted DraftKings to shut down its NFT marketplace in September 2023, citing legal uncertainties.
Settlement Details
The settlement, approved by Judge Denise Casper, will distribute the $10 million among the class members. Additionally, Dufoe is expected to request a $50,000 award for his efforts in litigating the case, along with attorney fees that could amount to one-third of the settlement fund.
The settlement was reached after extensive negotiations, which included mediation with a neutral third party. The class group expressed satisfaction with the outcome, emphasizing that it would prevent prolonged litigation that could drain resources.
Implications for DraftKings and the NFT Market
This settlement marks the second NFT-related lawsuit DraftKings has settled in 2024, following a previous agreement with the National Football League Players Association (NFLPA) over the use of player likenesses in NFTs. The ongoing legal challenges highlight the evolving landscape of NFTs and the scrutiny they face regarding their classification under securities laws.
The case underscores the need for clarity in the regulatory framework surrounding digital assets, as companies like DraftKings navigate the complexities of offering NFTs in a legally compliant manner. As the NFT market continues to develop, further legal challenges are likely to arise, prompting companies to reassess their strategies and compliance measures.
Conclusion
The $10 million settlement by DraftKings serves as a significant reminder of the legal risks associated with NFTs and the importance of adhering to securities regulations. As the digital asset landscape evolves, both companies and investors must remain vigilant in understanding the implications of their transactions in this rapidly changing market.
Sources
DraftKings settles NFL players union lawsuit over NFT contract, Reuters.
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.