DraftKings agrees $10m settlement in NFT class action
DraftKings has agreed a $10m settlement in a lawsuit over allegations that the company sold unregistered securities through its NFT marketplace, according to court filings.
Lead plaintiff Justin Dufoe filed the motion for preliminary approval of the settlement yesterday (26 February), bringing a potential end to litigation that has been ongoing for nearly a year and a half.
The settlement would benefit individuals who purchased, acquired, sold, disposed of, owned, held, used, or otherwise transacted in NFTs through DraftKings between 11 August 2021 and the date of final judgment.
The lawsuit, originally filed in March 2023, alleged DraftKings sold NFTs as unregistered securities and operated its DK Marketplace as an unregistered securities exchange in violation of federal and Massachusetts securities laws.
The complaint described how DraftKings received all revenue from initial NFT offerings and at least a 5% commission on secondary market transactions.
DraftKings shuts down NFT marketplace
A significant turning point in the case occurred in July 2024, when Judge Denise J. Casper denied DraftKings’ motion to dismiss in its entirety, allowing all of the plaintiff’s claims to proceed.
Shortly after this ruling and following an initial case management conference, DraftKings abruptly shut down its NFT marketplace, rendering the NFTs worthless.
According to the court filing, DraftKings cited “recent legal developments” as the reason for discontinuing the marketplace and offered certain NFT investors only a fraction of their original investment.
The closing of the market place also resulted in litigation from the NFL Players Association, which had agreed to licence players’ likenesses, in case that was also settled in January.
The settlement was reached after arm’s-length negotiations between the parties, including a full-day mediation session with neutral third-party mediators from mediation service provider JAMS.
If approved, the $10m settlement fund will be used to compensate class members, pay attorneys’ fees and litigation expenses, provide a service award for the lead plaintiff, and cover notice and administration costs.
The distribution to class members will be based on a plan of allocation outlined in the settlement notice, with no unclaimed funds reverting to DraftKings.
The court has yet to grant preliminary approval, which would allow notice to be sent to potential class members.