Can NFTs Be Securities? An Analysis Of Friel v. Dapper Labs

In Friel v. Dapper Labs, Inc., 2023 WL 2162747 (S.D.N.Y. Feb. 22, 2023), the United States District Court for the Southern District of New York, in denying a motion to dismiss a class action Complaint, held that sufficient allegations were made against Dapper Labs for violation of the securities laws by offering for sale certain non-fungible tokens, or NFTs, called NBA Top Shot Moments, to the public without filing a registration statement with the Securities and Exchange Commission. Key to this holding was the Court's finding that the NFTs at issue could be securities under SEC v. W.J. Howey Co., 328 U.S. 293 (1946), commonly referred to as the Howey test. Dapper Labs at *8. As the Court pointed out, at the motion to dismiss stage Plaintiffs must plead facts adequately establishing the following prongs of the Howey test: "(1) an investment of money (2) in a common enterprise (3) with the expectation of profit from the essential entrepreneurial or managerial efforts