DraftKings Settles NFT Class Action for $10M

• DraftKings agrees to $10M settlement over NFT securities lawsuit.
• Lawsuit accused DraftKings of selling unregistered NFTs as securities.
• Settlement compensates affected users, covering legal and settlement costs.

DraftKings has agreed to pay $10 million to settle a class action lawsuit that accused the company of violating Federal Securities Law. The lawsuit alleged that DraftKings sold unregistered NFTs on its marketplace. The settlement follows a prolonged legal battle and comes after a court denied the company’s motion to dismiss the case.

Class Action Lawsuit Against DraftKings

The lawsuit was filed in 2023 by lead plaintiff Justin Dufoe. He represented individuals and entities who bought, sold, or held NFTs on DraftKings’ platform. The complaint argued that these NFTs were unregistered securities, thus violating federal law. Dufoe sought damages on behalf of all affected parties.

DraftKings’ marketplace, which offered non-fungible tokens tied to fantasy sports contests, was shut down in 2024. The company had introduced its Reignmakers product, which allowed users to compete in fantasy sports using collectible NFTs. Reignmakers generated over $280 million in trading volume, with more than 10 million transactions.

DraftKings Settles NFT Class Action for $10M 3

At the time of the closure, DraftKings offered users the choice to either accept cash for their NFTs or transfer them to self-custody wallets. NFTs not moved to wallets by October 31, 2024, were burned.

The class action claimed that these NFTs constituted investment contracts under the Howey Test. As a result, they should have been registered with the U.S. Securities and Exchange Commission. The case continued for 18 months with extensive investigations and mediations.

Draftkings’ Legal Battle and Settlement

DraftKings attempted to dismiss the lawsuit, but the court ruled that Dufoe’s claims were valid. Judge Denise J. Casper of the Massachusetts District Court allowed the case to proceed. The settlement reflects the risks of continued litigation and avoids further delays.

Under the settlement, DraftKings will pay $10 million into a fund. This fund will cover legal fees, settlement costs, and compensation for the affected parties. Individuals who purchased or interacted with NFTs on DraftKings during the relevant period are eligible to receive compensation.

Attorney Sarah Flohr, representing the plaintiffs, emphasized the thorough process that led to this outcome. She stated that the settlement resulted from an extensive investigation and negotiations. This resolution aims to fairly compensate those affected parties. This settlement resolves the case and avoids further litigation.

DraftKings’ shares have remained relatively stable, with a minimal increase in value. The final approval of the settlement is expected later this year. As of now, the company continues to operate in its core fantasy sports and sports betting business. The case has sparked broader discussions about digital asset regulation.