DraftKings Settles $10M Class-Action Lawsuit Over NFT Marketplace.
DraftKings has agreed to pay $10 million to settle a class-action lawsuit over its now-closed NFT marketplace. The lawsuit, led by investor Justin Dufoe, accused the gambling giant of selling unregistered securities in the form of NFTs.
Federal Court Grants Preliminary Approval
On February 28, U.S. District Judge Denise Casper in Boston granted preliminary approval for the settlement. The lawsuit, originally filed in March 2023, claimed that DraftKings’ NFTs qualified as investment contracts under U.S. law, meaning they should have been registered as securities.
DraftKings previously filed to dismiss the case in September 2023, arguing that its NFTs did not meet the Howey Test criteria for securities. However, Judge Casper rejected the dismissal in July 2023, ruling that the NFTs could indeed be considered securities.
Breakdown of the $10 Million Settlement
The settlement funds will be distributed among members of the class action, though a portion will go toward legal fees and expenses.
- Lead plaintiff Justin Dufoe plans to request $50,000 for his role in the case.
- Attorneys’ fees could take up to one-third of the total settlement, plus litigation costs.
- The estimated total damages ranged between $18 million and $58 million, making the $10 million payout a 26% recovery at the midpoint.
NFT Marketplace Shutdown & Investor Losses
The case took a significant turn in July 2023 when DraftKings shut down its NFT marketplace, citing “recent legal developments.” The class-action motion argued that this move effectively rendered the NFTs worthless, with DraftKings offering some investors only a fraction of their initial investment in compensation.
Dufoe, the lead plaintiff, claimed he lost $14,000 after selling DraftKings NFTs at a loss and holding others that lost value.
Settlement Reached After Intense Negotiations
Following the closure of the marketplace, DraftKings and the class group engaged in settlement discussions that culminated in an all-day mediation session with a neutral third party.
The class group described the final settlement as a strong outcome, emphasizing that it avoids lengthy and costly litigation that could drain resources.
Ongoing Legal Scrutiny of NFTs
This case is part of a broader trend of increased legal scrutiny of NFTs in the U.S. Regulators and courts are increasingly treating certain NFTs as securities, raising questions about compliance in the industry.
Notably, this is DraftKings’ second NFT-related lawsuit settlement in 2024. In January, the company settled a case with the NFL Players Association, which had accused DraftKings of using NFL player likenesses in NFTs without proper payment.
In December, Lawyer Monthly reported on the class action lawsuit against DraftKings, which alleges the company unlawfully closed user accounts and withheld funds. The lawsuit, filed in Massachusetts, claims DraftKings’ practices may have led to millions in retained user balances, sparking concerns over transparency and consumer protection. Read more: Lawyer Monthly Article
Final Thoughts
The DraftKings settlement sets a precedent for NFT-related lawsuits and highlights the risks companies face when launching digital assets. As regulators continue to crack down on NFTs that resemble securities, businesses in the space must carefully navigate compliance to avoid similar legal battles.
This case serves as a major warning for NFT platforms—without proper legal structuring, companies risk multi-million dollar settlements, reputational damage, and potential regulatory action.
