Friel v. Dapper Labs, Inc.

Friel v. Dapper Labs, Inc.

Opinion

DECISION AND ORDER

VICTOR MARRERO, United States District Judge.

Lead Plaintiff Gary Leuis ("Leuis") and named plaintiff John Austin ("Austin"), individually and on behalf of all others similarly situated (together, "Plaintiffs") bring this action against Dapper Labs, Inc. ("Dapper Labs") and its Chief Executive Officer, Roham Gharegozlou ("Gharegozlou") (together, "Defendants"), alleging that Dapper Labs violated the securities laws by offering for sale to the public certain non-fungible tokens ("NFTs") known as NBA Top Shot Moments ("Moments") without filing a registration statement with the Securities and Exchange Commission (the "SEC"). Plaintiffs assert two causes of action: (1) violations by Dapper Labs of Sections 5 (15 U.S.C. § 77e) and 12(a)(1) (15 U.S.C. § 77l) of the Securities Act of 1933 ("Securities Act") for the unregistered offer and sale of a security, to wit, Moments ("Moments"), sold on its NBA Top [*2]  Shot application; and (2) violation of Securities Act Section 15 (15 U.S.C. § 77o) against Gharegozlou as control person liability for the primary violations alleged in the first cause of action.

Now before the Court is Defendants' motion to dismiss the Amended Complaint ("AC") in its entirety and with prejudice pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"). (See "Motion," Dkt. No. 37.) For the reasons stated below, Defendants' motion is DENIED.

I. BACKGROUND

A. FACTUAL BACKGROUND¹

Dapper Labs, founded by Gharegozlou, is a Vancouver, Canada-based corporation that develops blockchain technologies. In simplest terms, a "blockchain" is a decentralized digital ledger used to record and validate transactions. As discussed in more detail below, after a previous foray into developing blockchain-based assets on other blockchains, Dapper Labs created its own, the Flow Blockchain. Dapper Labs developed the Flow Blockchain as part of a larger so-called Flow Network, which would host applications that run atop and whose transactions are validated on the Flow Blockchain.

1. Blockchain Technology²

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