Dapper Labs has reached a tentative $4 million settlement agreement with a group of investors who filed a class action lawsuit against the non-fungible token (NFT) company and its co-founder and CEO Roham Gharegozlou. The investors accused Dapper Labs of violating federal securities laws. The settlement, if approved by District Court Judge Victor of the Southern District of New York (SDNY), will end a nearly three-year legal battle.

The lawsuit, initiated in 2021, claimed that Dapper Labs' NBA Top Shot Moments NFTs were unregistered securities. Plaintiffs argued that the value of these NFTs was tied to the overall popularity of the project. They also alleged that Dapper Labs restricted investors from cashing out for extended periods to keep value locked on the platform and initially did not permit the buying or selling of Moments on external NFT platforms.

Dapper Labs' defense maintained that their NFTs were not securities but digital basketball cards. Despite this, the proposed settlement will prevent the plaintiffs from continuing to claim that the NFTs are securities. The $4 million settlement fund will cover payments to class members, attorneys' fees, and settlement administration costs.

In addition to the monetary settlement, Dapper Labs has agreed to implement several business changes. These include mandatory employee training programs focused on compliance with federal securities laws and ethical marketing practices, and improvements in payment and withdrawal processes. Moreover, Dapper Labs committed to transferring control of its remaining FLOW tokens to the Flow Foundation to ensure the decentralization of the Flow ecosystem.

Although the settlement is between Dapper Labs and the investors, not regulators, Gharegozlou sees it as a step towards clarifying the legal status of NFTs. He emphasized the company's ongoing efforts to advocate for regulatory clarity, arguing that consumer NFTs should not be classified as financial products and should instead be regulated under established consumer protection laws at the state level. Gharegozlou also mentioned that Dapper Labs is pushing for federal legislation to affirm that consumer product NFTs, such as NBA Top Shot, are not subject to federal financial regulation.

Gharegozlou noted that no regulatory body, including the U.S. Securities and Exchange Commission (SEC), has claimed that Moments NFTs are securities. While the SEC did investigate Dapper Labs, the investigation concluded in September 2023 without further action.