Sports betting giant DraftKings has agreed to a $10 million settlement to resolve a class action lawsuit alleging that its non-fungible tokens (NFTs) were unregistered securities.
The lawsuit, filed in March 2023, accused DraftKings of operating an unregistered securities exchange through its NFT Marketplace and Reignmakers daily fantasy sports product.
The lead plaintiff Justin Defoe named CEO Jason Robins, DraftKings North America President Matt Kalish and the company’s Chief Transformation Officer Jason Park in the suit, as well as the company.
The settlement has been filed for preliminary approval at the U.S. District Court for the District of Massachusetts. If approved, it will compensate up to 175,000 customers who bought, sold, or held DraftKings NFTs between 11 August and the final judgment date.
Lead Plaintiff Dufoe has requested a $50,000 service award for his role in the litigation. The settlement will also cover attorney fees and administrative costs up to a cap of $300,000.
From Investment Hopes to Legal Woes: DraftKings’ NFT Controversy
The lawsuit primarily focused on whether DraftKings NFTs constituted securities under U.S. law. The plaintiffs argued that the Howey Test, a legal standard used to define securities, applied to DraftKings’ NFTs.
The reasons provided were that:
- DraftKings controlled the marketplace where NFTs were sold and resold.
- The company profited from secondary sales, charging a 5% transaction fee.
- The NFTs were marketed as having potential value appreciation, resembling an investment contract.
DraftKings attempted to have the case against it dismissed, but this was rejected in July 2024. Judge Casper ruled at the time that plaintiffs had “plausibly alleged” that the NFTs were securities.
After the dismissal was rejected, the company halted its NFT operations, leaving many holders of DraftKings’ non-fungible tokens with illiquid assets.
The operator has subsequently settled another legal dispute with the National Football League Players Association, which accused it of failing to pay for using player likeness.
Could DraftKings Accept Bitcoin? CEO Says It’s ‘Something to Consider
Recently, on the company’s fourth-quarter earnings call, Chief Executive Officer Jason Robins told investors that despite the NFT debacle, the company is monitoring the regulatory landscape and could accept cryptocurrency as a form of payment in the future.
Should regulated operators start accepting digital currencies, crypto casinos and sportsbooks could become the norm.
“It’s certainly something we’re looking at. It’s not entirely a product roadmap question,” explained Robins on the call.
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