DraftKings agrees to $10M settlement to resolve NFT class action

Update: 

• DraftKings Inc. agreed to pay $10 million to end claims the company harmed consumers by selling non-fungible tokens (NFTs) on its now-defunct DraftKings Marketplace.
• The DraftKings class action claimed the company’s NFTs were unregistered securities, and consumers who bought them lacked the knowledge to properly evaluate the risks of investing in them.
• The DraftKings settlement funds will be used to compensate consumers who owned the NFTs and cover attorney fees and administrative costs, reports Law360. 
• DraftKings had previously sought to dismiss the lawsuit, arguing that the NFTs did not qualify as securities under the Howey test, but a federal judge disagreed and allowed the case to proceed.
• The company shut down its NFT marketplace in July 2024, citing legal developments.

DraftKings NFTs class action lawsuit overview: 

• Who: Justin Dufoe filed a class action lawsuit against DraftKings Inc. and three of its executives. 
• Why: Dufoe claims DraftKings harms investors by allegedly selling non-fungible tokens on its DraftKings Marketplace that he argues constitute as unregistered securities.
• Where: The class action lawsuit was filed in Massachusetts federal court.

DraftKings is operating an unregistered securities exchange by selling non-fungible tokens (NFTs) on its DraftKings Marketplace, a new class action lawsuit alleges. 

Plaintiff Justin DuFoe claims the DraftKings NFTs constitute as unregistered securities and that many of the investors who buy them “lack the technical and financial sophistication necessary to evaluate the risks associated with their investment.” 

DuFoe argues he and other consumers purchased DraftKings NFTs during its initial public offerings of them, with the expectation that the companys’ NFT platform would allow them to “realize profits.” 

“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,” the DraftKings class action states. 

DuFoe claims he and others were ultimately “entirely dependent” on the managerial efforts of DraftKings both when they purchased the NFTs and later sold them on a secondary market controlled by the company. 

DraftKings failed to register NFTs as securities, says class action

DraftKings “had actual knowledge of facts” indicating that the NFTs they promoted and sold were considered securities under federal and state securities laws, yet failed to register them as such, the DraftKings class action alleges. 

“Defendants reaped, or will reap, hundreds of millions of dollars in profits from their unregistered securities sales,” the DraftKings class action states. 

DuFoe wants to represent a nationwide class of all persons who have purchased or otherwise acquired a DraftKings NFT since August 11, 2021. 

DraftKings is accused of violating the Securities Act of 1933, the Securities Exchange Act of 1934, and a pair of Massachusetts general laws. 

Plaintiff is demanding a jury trial and requesting an award of rescissory damages and interest thereon for himself and all class members. 

A separate class action lawsuit was filed against DraftKings in January by a consumer arguing the company didn’t pay users properly following a National Football League game that was canceled on Jan. 2. 

Have you purchased or otherwise acquired a DraftKings NFT? Let us know in the comments! 

The plaintiff is represented by Patrick T. Egan and Justin N. Saif of Berman Tabacco, Anthony F. Fata of Kirby McInerney LLP, and Blake T. Hannafan of Hannafan & Hannafan, Ltd. 

The DraftKings NFTs class action lawsuit is Dufoe, et al. v. DraftKings Inc., et al., Case No. 1:23-cv-10524, in the U.S. District Court for the District of Massachusetts.

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