DraftKings NFT Lawsuit Settles for $10M
DraftKings is closing the book on a class-action lawsuit from NFT buyers, agreeing to a $10 million settlement. These buyers claimed the gambling giant’s non-fungible tokens, sold through its now-closed marketplace, violated securities laws.
The wheels of justice turned on February 28th when Boston Federal Court Judge Denise Casper gave a preliminary nod to the settlement. This motion, submitted just days prior on February 26th by lead plaintiff Justin Dufoe on behalf of the class, proposes a $10 million cash payout to resolve all claims.
If finalized, this $10 million will be distributed among the members of the class action. Interestingly, Dufoe also plans to request up to $50,000 as recognition for his efforts in leading the legal battle, in addition to attorney fees which could reach one-third of the total settlement, plus coverage for litigation costs.
This settlement, nearing final approval, would bring an end to the lawsuit initiated in March 2023. The core argument of the suit was that DraftKings’ NFTs should have been classified as investment contracts under US law, and therefore, their sale constituted an offering of unregistered securities.
A highlighted excerpt from the class group’s filing explaining the settlement’s aim to avert “costly litigation” that could drag on for years. Source: CourtListener
Adding to the list of names, the lawsuit also targeted DraftKings co-founders Jason Robins and Matt Kalish, alongside Jason Park, formerly the finance head and now Chief Transformation Officer.
Plaintiff Dufoe stated in his claim that he personally suffered losses of $14,000. This came from selling DraftKings NFTs at a loss on the company’s own DK Marketplace and holding onto NFTs that plummeted in value.
Back in September 2023, DraftKings attempted to have the suit thrown out, arguing that their NFTs didn’t meet the criteria of investment contracts as defined by the Howey test – a key legal standard. However, Judge Casper rejected this dismissal motion in July, suggesting the NFTs could indeed be considered securities.
Coincidentally, or perhaps not, DraftKings decided to shut down its NFT marketplace later that same July, citing “recent legal developments.” The class action settlement motion pointed out that this closure essentially rendered the “NFTs worthless,” and that DraftKings had “offered certain NFT investors a fraction of their original investment” as compensation.
According to the recent court documents, settlement talks between DraftKings and the class action group began after the marketplace shutdown. They eventually reached an agreement following “an all-day mediation,” which involved intense negotiations facilitated by a neutral mediator.
Related: US judge tosses SEC fraud suit against Hex founder Richard Heart
The class action group is touting the proposed settlement as an “outstanding result,” emphasizing its success in “avoiding continued and costly litigation that would deplete resources for everyone involved.”
They further elaborated that “realistic and supportable damages” could have ranged anywhere from $18 million to a substantial $58 million. In this context, the $10 million settlement represents a significant 26% “of the midpoint of potentially recoverable damages in this case — an excellent recovery when you consider everything.”
Interestingly, this marks the second time this year DraftKings has settled an NFT-related lawsuit.
Just in January, DraftKings reached a settlement with the National Football League Players Association regarding a suit alleging unauthorized use of NFL player likenesses in NFTs.
While the specifics of that settlement remain under wraps, the case was put on hold until March 28th to finalize the agreement.
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