Nike faces $5 million class action lawsuit from RTFKT users over shuttered NFT platform.

Popular athletic brand Nike is facing the heat of a class-action lawsuit to the tune of more than $5 million. This comes after Nike closed its Web3 NFT platform RTFKT earlier this year. RTFKT, founded in 2020, specialized in unique shoes and collectibles for use in the metaverse. Nike acquired the platform in 2021 to harness its blockchain and augmented reality technology and appeal to the RTFKT user base.

The lawsuit, filed by a group of RTFKT users on April 25 in the Eastern District of New York, claims that Nike caused considerable financial losses by luring investors with its sneaker-themed NFTs only to abruptly shutter the platform. The plaintiffs contest that the NFTs Nike sold were unregistered securities as they were not registered with the US Securities and Exchange Commission (SEC). The legal action alleges that Nike capitalized on its brand image and marketing prowess to promote the unregistered securities through RTFKT.

The lawsuit emphasizes that investors were misled and would not have purchased the NFTs had they known the legal status of these digital assets. These NFTs’ value was intricately linked to Nike’s marketing activities and famous brand. The complaint states that Nike’s actions contravened consumer protection laws and infringed upon various states’ regulations against unfair trade and competition practices. It highlights that adjudicating whether NFTs are securities is an ongoing debate in an unregulated environment, with no definitive ruling by a US court.

In a similar case, media company Impact Theory faced a legal settlement with the SEC in 2023, acknowledging that its NFTs were classified as securities. The SEC declared that Impact Theory had engaged in an unregistered security offering, marking the agency’s first case in the NFT realm. Dapper Labs, known for the NBA Top Shot NFTs, resolved a lawsuit brought against them by investors in the Southern District of New York. The court deliberated on the “Howey test,” a legal principle used by the Supreme Court to define securities. Although the court had not made a final decision, Dapper Labs settled the matter for $4 million.

OpenSea, a prominent NFT marketplace, communicated its concerns to the SEC regarding allegations of unregistered securities. This lawsuit underscores the uncertain legal landscape that NFTs currently operate in and highlights the need for regulatory clarity in this burgeoning industry. Whether Nike will emerge unscathed from this legal tussle or face the repercussions of its actions remains to be seen.