US judge rejects motion to dismiss class action lawsuit against DraftKings and its NFTs

A US judge in Massachusetts has rejected DraftKings’ request to dismiss a class action lawsuit brought by buyers of its non-fungible tokens (NFTs).

The lawsuit alleges that the tokens are investment contracts, setting the stage for future litigation over whether NFTs are securities. DraftKings offers sports-related NFTs on its marketplace via the Polygon blockchain.

Justin Dufoe, a buyer, initially filed suit against DraftKings on behalf of other owners in March 2023and claimed that these NFTs met the requirements of the Howey Test.

In this recent ruling, a court agreed that DraftKings’ NFTs were a monetary investment that pooled assets in a common enterprise with shared risks and rewards and created a reasonable expectation of profit from DraftKings’ efforts, thus plausibly qualifying them as securities under the Howey test.

The court found that the claim that the value of the NFTs was dependent on the success of the DraftKings marketplace was plausible, noting that the value fluctuates in lockstep with interest in that specific marketplace—an issue that has been addressed in previous cases examining NFTs.

All this comes after Dapper Labs agreed in June $4 million to settle a similar class action lawsuit. Fortune previously reported that the SEC once launched an investigation into Dapper Labs but closed it in September 2023.

However, the difference between Dapper Labs’ NFTs and DraftKings’ is that Dapper uses its own proprietary blockchain called Flow, while DraftKings issues its tokens on Polygon.

A date for the continuation of the DraftKings class action lawsuit has not yet been set.