Dapper Labs, one of the leading non-fungible token companies with products like NBA Top Shot and CryptoKitties, is under investigation by the Securities and Exchange Commission through September, according to internal agency documents obtained by Dapper Labs. was. luck.
In what the SEC calls a “case closure report,” David Hirsch, head of the regulator's virtual currency and cyber division, closed an investigation titled “Dapper Labs, Inc.” The one-page report did not include why authorities were investigating Dapper Labs, when the investigation began, or why the SEC decided to shut down Dapper Labs.
The agency did not release luck A five-page set of recommendations related to the report. “The SEC does not comment on the possibility of an investigation,” the spokesperson said.
The regulator's decision in late September to end its investigation into Dapper Labs, which has raised more than $600 million since its first funding round in 2018, followed first the SEC settlement in August's Impact Theory, and then the This follows the SEC settlement in Stoner Cats in mid-month. In the SEC's first-ever salvo against the NFT industry, the SEC alleged that both NFT projects were offering and selling unregistered securities, thus violating federal law.
Separately, Dapper Labs is fighting an ongoing class action lawsuit in which plaintiffs claim NBA Top Shot Moments, an NFT sold by Dapper Labs, are unregistered securities. In February 2023, the federal judge presiding over the case refused to dismiss the case, writing that it was “prima facie plausible” that Moments were securities.
A Dapper Labs spokesperson said: “We were never contacted by the SEC and were unaware of this investigation.” “Irrespective of that, the SEC appears to have closed the case.”
From CryptoKitties to layoffs
In late 2017, Dapper Labs, led by co-founder and CEO Roham Gharegozlou, created CryptoKitties, a blockchain-based game where players create and trade NFTs of cartoon cats. The “super adorable” creatures helped fuel the NFT boom and land blue-chip investors for the startup, including Andreessen Horowitz, Union Square Ventures, Google Ventures, and more.
Dapper Labs followed up the success of CryptoKitties with Top Shot, an NBA-approved marketplace where users can purchase video highlights of their favorite basketball players as NFTs. The concept, which resembles a digital version of a trading card game, was an instant success, with monthly sales ballooning to more than $226 million for him in February 2021, according to CryptoSlam data.
Soaking up more and more venture capital, including investments from NBA players themselves, Dapper Labs soon struck deals with the NFL and La Liga to develop similar products. However, according to CryptoSlam, total NFT sales declined from an all-time high of over $6 billion in January 2022 to a low of just under $300 million in September 2023, leading to a market collapse in 2022. . Top Shot's sales similarly plummeted to just over $2 million that same month, the lowest in monthly sales.
Dapper Labs soon went through layoff after layoff, with the most recent public layoff occurring in July 2023. Since then, the company's workforce has shrunk from about 200 to just under 180, a spokeswoman said.
SEC vs. NFTs
After the collapse of cryptocurrency exchange FTX, the SEC has steadily sued and investigated a number of crypto companies, including the TRON Foundation, Terraform Labs, Binance, Coinbase, Kraken, and now Uniswap. And the settlement between Impact Theory and Stoner Cats in late 2023 means regulators have begun to seriously scrutinize the NFT industry.
The agency's decision to end its investigation into Dapper Labs, one of the most well-funded companies in the market, could signal a course correction. “It definitely provides some peace of mind to participants in the NFT market,” said Philip Moustakis, a securities attorney at Seward & Kissel. luck.
However, “all NFTs cannot be presumed to be secure. The SEC has already indicated that some transactions in NFTs may constitute securities transactions.”
Arthur Jacoby, a former SEC prosecutor who now specializes in securities litigation at Herrick Feinstein, cautioned against reading too much into the SEC's closure of the investigation. “It doesn't mean we won't investigate them next year,” he said. “That doesn't mean they think Dapper Labs hasn't done anything wrong. It doesn't mean they've cleared Dapper Labs.”
Nor does this mean the end of securities litigation for the former NFT giant. A class action lawsuit against Dapper Labs continues in federal court, with plaintiffs claiming NBA Top Shot Moments are unregistered securities. The judge overseeing the case ordered both parties to complete depositions by June 17.
