A class action lawsuit has been filed against sports betting operator DraftKings for allegedly selling NFTs (non-fungible tokens) as unregistered securities.
The lawsuit, Justin Dufoe v. DraftKings, Inc., appears to stem from the significant losses people have accumulated over the tanking of the NFT market. In January, Fanatics announced it sold its 60% stake in NFT Candy Digital, to Galaxy Digital.
All NFTs, whether sports memorabilia, art, music, or videos, have a unique digital identifier that certifies authenticity and ownership. Many had hoped these one-of-a-kind digital tokens could fetch significant profits on the secondary market, similar to physical art pieces.
Customers can browse the DraftKings Marketplace for one-of-a-kind NFTs, which is where this lawsuit stems from.
NFT value loss leads to DraftKings lawsuit
Filed on March 9 in US District Court in Boston the complaint reads:
“Defendants had actual knowledge of facts indicating that the NFTs they promoted and sold were ‘securities’ under federal and state securities laws and further that they had failed to register their NFTs as securities.
Defendants reaped, or will reap, hundreds of millions of dollars in profits from their unregistered securities sales.”
According to Massachusetts Lawyers Weekly, Dufoe bought DraftKings’ NFTs in an initial public offering. The plaintiff asserts that he expected to “realize profits” trading on his NFTs.
The complaint states:
“The profits would be realized when Plaintiffs and the Class would sell their NFTs on the secondary market platform that DraftKings solely owned and managed, with DraftKings receiving exchange-like fees and commissions from the purchases and sales on its secondary market platform.
“Thus, Plaintiff and the Class were entirely dependent on the managerial efforts of DraftKings, both when they initially purchased the NFTs and when they later sold them on the DraftKings’ controlled secondary market.”
Dufoe, an Illinois resident, claims he has experienced losses upwards of $14,000 due to the decline in the value of the NFTs he purchased.
The proposed class action lawsuit includes all investors who purchased DraftKings NFTs between August 11, 2021 and the present.
Fantasy sports also facing questions
But this isn’t the only lawsuit DraftKings has to deal with.
Another case, Simpson G. Turley v. DraftKings, Inc., concerns DraftKings’ daily fantasy sports division.
The specific instance is the Jan. 2, 2023 game between the Buffalo Bills and Cincinnati Bengals. During the contest, Bills safety Damar Hamlin collapsed on the field. Ultimately the game was postponed with fewer than six minutes left in the first quarter. Eventually, the NFL opted to cancel the game entirely.
The complaint reads:
“On January 3, 2023, DraftKings began contacting its DFS participants, including Plaintiff Turley and the Class Members, to explain that DraftKings had decided to cancel and refund entries for certain NFL fantasy football contests.
Notably, however, DraftKings did not cancel and refund entries in other NFL fantasy football contests, opting instead to pay out those contests based on “current, accrued points,” which included accrued points from the Buffalo Bills-Cincinnati Bengals game.”
The crux of Turley’s complaint is that DraftKings paid out specific DFS events using the scores from the Bills-Bengals game but not others.
“DraftKings has improperly paid out on certain NFL DFS contests while refusing to pay out on other contests — DraftKings arbitrarily chose to apply the statistics from the suspended Buffalo Bills-Cincinnati Bengals game (as played up to 5:58 remaining in the first quarter) to certain contests and offer payouts to customers leading in those contests, while refusing to apply the same statistics from the game to other contests and refusing to offer the same payouts to customers leading in those contests.”