Federal judge denies DraftKings’ request to dismiss NFT sale suit
The company claimed that its NFTs are not securities and asked that the case be dropped.
A federal judge has not dismissed a proposed class action suit involving DraftKings and an alleged claim that the company “violated federal securities laws by not properly registering its non-fungible tokens,” according to a recent Bloomberg report.
US District Court for the District of Massachusetts Judge Denise Casper presided over the hearing.
Plaintiff Justin Dufoe had purchased and sold NFTs from February 2022 to February 2023 in the DraftKings Marketplace, the report said. Dufoe said that he and others “expected to make a profit off of the NFTs, but he sold some at a loss and many that he still held were worthless.”
He pleaded that “DraftKings’ NFTs were investment contracts, and thus securities within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934” and asked to have his money back.
However, DraftKings maintained that its NFTs were not securities and requested a motion to dismiss.
After hearing from both sides, Casper denied DraftKings’ motion and further noted that NFTs are “a digital asset whose ownership, including history of purchases and sales, is reflected in a blockchain.”
The judge went on to state that DraftKings’ NFTs “feature a static or dynamic image of a professional athlete,” according to the local report.
“Dufoe has sufficiently alleged the pooling of assets requirement, because the revenue generated by the sale of NFTs was reinvested into DraftKings’s business, including through the promotion of the Marketplace,” the judge said.
“Although the NFTs are non-fungible assets whose prices do not uniformly rise and fall, it is still plausible for this Court to infer, and for Plaintiffs to expect, that if DraftKings drummed up additional demand for its NFTs while limiting the supply, that the value of most NFTs in the ecosystem would rise.”
This is not the first time DraftKings has appeared in front of a Massachusetts judge, having faced a class action lawsuit from the Public Health Advocacy Institute and its Center for Public Health Litigation in December.
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