NBA Top Shot developer Dapper Labs and its CEO, Roham Gharegozlou, are facing a lawsuit accusing the company of selling unregistered securities in the form of its “Moments”, which are non-fungible tokens for sports fans.

Despite the claims of Dappers’ attorney that “basketball cards are not securities.” Pokémon cards are not securities. Baseball cards are not securities. Common sense says so. The law says so. And the courts say so,” Judge Victor Marrero decided to let the case go ahead.

Like him wrote in his decision (Friel v Dapper Labs, Inc. et al., 1:21-cv-05837-VM):

Overall, the economic reality of this case supports the Court’s conclusion that the AC’s accusations hold true at this stage. In summary, plaintiffs rightly argue that the NFT’s Dapper Labs offering, Moments, was an offering of an “investment contract” and thus a “security” required to be registered with the SEC.

The plaintiffs, Gary Leuis, Jeeun Friel and John Austin, accuse Dapper Labs of not only making hundreds of millions of dollars in profit from the sale of unregistered securities, but also “supporting the market for Moments, as well as the overall valuation of NBA Top Shot” by preventing users from withdrawing their funds for months. While Top Shot users couldn’t back down, Dapper Moments highlighted sales to generate interest and increase value for its Flow Blockchain and Flow token.

When we reported NBA Top Shot at the peak of its activity in March 2021, many users were still unable to get their money out of the platform. According to CryptoSlam, the number of active buyers peaked at 184,000 that month before falling sharply, while a March 26, 2021 blog post on the company said that about 28,000 users had been approved for withdrawals, with another 5,000 to be added in the next month. added week.

The plaintiffs cited marketing for NBA Top Shot that highlighted the expensive Moments sales and increased trading on the platform, such as this tweet about a $208,000 transaction for a LeBron James Moment. The plaintiffs referenced our 2021 article in their lawsuit as part of their argument that Dapper Labs did not prevent Top Shot users from reviewing their Moments purchases and referring to them as investments.

In their counter-arguments, attorneys for Dapper Labs and Gharegozlou wrote, “When Dapper sold its Moments, it sold molded products not as part of capital raising, but as products. This was not a capital investment, not a call to passive investors, but the sale of cards to collectors.”

In an emailed statement to The Verge today, Dapper Labs SVP, head of communications Stephanie Martin said, “Importantly, today’s injunction — which the court described as a “close call” — only the defendants’ motion to dismiss the complaint stage of the case. It has not concluded that the plaintiffs were right, and it is not a final judgment on the merits. Courts have repeatedly found that consumer goods — including art and collectibles such as basketball cards — are not securities under federal law. We believe the same applies to Moments and other collectibles, digital or otherwise, and we look forward to vigorously defending our position in court as the case continues.”

However you look at them or whatever the courts ultimately decide, interest in NBA Top Shot Moments as an investment or as “formed products” declined rapidly from a peak two years ago when the market tracker CryptoSlam recorded $45 million in sales in just one day on February 22, 2021, as part of a $224 million month.

Today, CryptoSlam shows $71,645 in sales and just over 12,000 unique buyers this month…so far.

Update 2:41 PM ET: Comment added from Dapper Labs.