Are NFTs Basketball Cards Securities?

By Zaniya Lewis

                   The world of non-fungible tokens (“NFTs”) and blockchains have dramatically changed the security and intellectual property landscape. The world of technology continues to innovate every day, while the law is still trying to catch up on important issues. Whether NFTs, specifically digital basketball cards, are subject to federal securities laws is currently being explored in the court case Friel v. Dapper Labs. [1] The plaintiff Friel and other members of the “class” sued the defendant Dapper Labs because they believed that by Dapper Labs selling an NFT collection called NBA Top Shot Moments throughout the United States, the defendant has violated the federal securities laws.[2] In July 2019, Dapper Labs announced their NFTs collection the “NBA Top Shot Moments” in collaboration with the National Basketball Association (“NBA”) and the National Basketball Players Association (“NBPA”).[3] The NBA Top Shots Moments are digital basketball cards with short video clips of a play from an NBA game.[4] Digital basketball cards are sold in packs, just like physical basketball cards. The digital basketball cards reside on a blockchain, which records the ownership and transfer of the cards. [5] The defendants believe that digital basketball cards are not securities.[6] In fact, they used the example of Pokémon cards and explained how the cards are not securities.[7] While the plaintiff used the Howey Test, to further elaborate on their argument that digital basketball cards are considered “investment contracts”.[8]

The Howey Test explored whether a transaction qualifies as an “investment contract” (i.e., contract, transactions, or scheme), and, therefore, would be subject to U.S. securities laws.[9] The U.S. Supreme Court held in SEC v. W.J. Howey Co, stated that the offer of a land sales and service contract was an “investment contract” within the meaning of the Securities Act of 1933.[10] In addition, the U.S. Supreme Court held that “whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party enterprise.”[11] The defendant’s counterargument emphasized that digital basketball cards are not investment contracts.[12] The defendants believe that this case is distinguishable from SEC v. W.J. Howey Co because, in this case the plaintiffs had significant control over their personal NFT collections.[13] While, in SEC v. W.J. Howey Co, the buyers would lease the property back to Howey.[14] Then, the company would take care of the land and sell fruit on behalf of the owners.[15] However, in this case the plaintiffs are not selling their digital basketball cards back to Dapper Labs. Furthermore, the defendants stated the plaintiffs are in full control of their collections (i.e., selling, trading, and gifting).[16]

As the blockchain and technology world continues to innovate, the law must innovate and provide transparency on policies surrounding NFTs and blockchains. When the laws are ambiguous, issues arise like this case. As a result, the court must be aware of the policy concerns in that if NFTs are considered securities, this decision may prevent innovation in the field. When the court decides, this decision will change the legal landscape of blockchains and NFTs.

[1] Complaint, Friel v. Dapper Labs Inc., No. 21-CV-05837 (S.D.NY. May. 13, 2021),

[2] Id. 

[3] Memorandum of L. in Support of Defendants’ Motion to Dismiss, Friel v. Dapper Labs Inc., No. 21-CV-05837 (S.D.NY. Aug. 31, 2022),

[4] Id.

[5] Id.

[6] Id. at 8.

[7] Id. at 14.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at 15.

[12] Id.

[13] S.E.C. v. W.J. Howey Co., 90 L. Ed. 1244 (1946).

[14] Id.

[15] Id.

[16] Memorandum of L. in Support of Defendants’ Motion to Dismiss, Friel v. Dapper Labs Inc., No. 21-CV-05837 (S.D.NY. Aug. 31, 2022),