DraftKings Settles $10M NFT Lawsuit as Investors Claim Securities Violation

Sports betting giant DraftKings has agreed to pay $10 million to settle a class-action lawsuit brought by investors who alleged the company’s non-fungible tokens (NFTs) were unregistered securities. The settlement, which will be split among affected investors, was preliminarily approved on February 28 by Boston federal court Judge Denise Casper.

Settlement Reached After Lengthy Legal Battle

The case, originally filed in March 2023, accused DraftKings of selling NFTs on its now-defunct DK Marketplace that functioned as investment contracts under U.S. securities laws. Lead plaintiff Justin Dufoe, who claimed to have lost $14,000 due to declining NFT values, spearheaded the lawsuit against DraftKings and its executives, including co-founders Jason Robins and Matt Kalish.

In response, DraftKings attempted to have the case dismissed in September 2023, arguing that its NFTs did not meet the criteria of securities under the Howey Test. However, Judge Casper ruled against the dismissal, stating that the NFTs could indeed be classified as securities. Shortly after, in July 2023, DraftKings shut down its NFT marketplace, citing “recent legal developments.”

With the marketplace defunct, investors argued their NFTs were rendered worthless, and DraftKings allegedly offered them only a fraction of their original investments as compensation.

Investors Accept Deal Despite Higher Damages Estimate

The settlement discussions between DraftKings and the class group began following the marketplace closure and culminated in an all-day mediation session. The legal team representing the investors called the agreement “an outstanding result”, highlighting that prolonged litigation would have been costly and uncertain.

While the potential damages in the case were estimated between $18 million and $58 million, the $10 million settlement represents 26% of the midpoint of those estimates, which the plaintiffs’ attorneys argue is a “strong recovery” given the circumstances.

As part of the settlement, Dufoe is expected to request a $50,000 award for his role in the litigation, while attorneys will seek up to one-third of the settlement fund in legal fees.

This marks DraftKings’ second NFT-related legal dispute this year. In January, the company settled a lawsuit with the National Football League Players Association (NFLPA) over the unauthorized use of NFL players’ likenesses in NFTs. While the terms of that settlement remain undisclosed, the case has been paused until March 28 for finalization.

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