DraftKings has agreed to pay $10 million to settle a securities class-action lawsuit from buyers of its non-fungible tokens (NFTs) that the gambling company sold through its now-shuttered marketplace.
On Feb. 28, Boston federal court Judge Denise Casper granted a preliminary settlement motion filed days earlier on Feb. 26 by lead plaintiff Justin Dufoe and the class, which would settle all claims “for $10 million in cash.”
The settlement deal would see the $10 million split between the class action’s members. The deal also added that Dufoe anticipates later asking for a $50,000 award “for his time and effort litigating the case” along with attorneys’ fees of up to one-third of the settlement fund plus litigation expenses.
The nearly fully approved settlement is close to ending the suit first filed in March 2023, claiming the NFTs that DraftKings sold were investment contracts under US law and, therefore, were offered as unregistered securities.
A highlighted excerpt from the class group’s filing arguing to allow the settlement to avoid “costly litigation,” which could take years. Source: CourtListener
The suit also named DraftKings co-founders Jason Robins and Matt Kalish, along with finance boss turned chief transformation officer Jason Park.
Dufoe claimed in the suit to have lost $14,000 by selling DraftKings NFTs on the company’s DK Marketplace at a loss and by holding NFTs that had lost value.
DraftKings filed to dismiss the suit in September 2023, claiming the NFTs weren’t investment contracts under the securities-defining Howey test as claimed — which Judge Casper knocked back in July, saying the NFTs could be securities.
Later that same month, DraftKings shut its NFT marketplace, saying it was “due to recent legal developments.” The class settlement motion claimed the shuttered marketplace made “the NFTs worthless,” and DraftKings “offered certain NFT investors a fraction of what they had invested in the NFTs.”
The recent filing said DraftKings and the class group started settlement discussions after the company shut its marketplace, which was eventually decided in “an all-day mediation, which involved rigorous and extensive negotiations before a neutral third party.”
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The class group called the resulting agreement an “outstanding result” that would “avoid continued and costly litigation that would deplete resources.”
The group said that “realistic and supportable damages” range from $18 million to $58 million, with the settlement amounting to 26% “of the midpoint of potentially recoverable damages in this case — an excellent recovery under the circumstances.”
It’s the second NFT-related lawsuit that DraftKings has settled this year.
In January, the company reached a settlement with the National Football League Players Association in a suit that accused DraftKings of failing to pay for using NFL player likenesses in NFTs.
The exact details of the settlement weren’t disclosed, but the suit was stayed until March 28 to finalize the settlement.
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