A recent Fortune Magazine report revealed that Dapper Labs, a prominent non-fungible token (NFT) company, was under investigation by the Securities and Exchange Commission (SEC) until September 2023.
The internal agency document obtained by Fortune indicates that the investigation was abruptly closed, leaving many questions unanswered.
Dapper Labs Investigation Terminated By SEC Chief
Per the report, the SEC’s crypto and cyber unit chief, David Hirsch, terminated the “Dapper Labs, Inc.” investigation on September 29. However, the report does not disclose the reasons for the investigation, the duration, or the factors leading to its closure.
Notably, the SEC did not provide the five-page recommendations associated with the report, and a spokesperson declined to comment on the investigation’s existence.
The SEC’s decision to close the Dapper Labs investigation follows settlements with Impact Theory and Stoner Cats, marking the SEC’s initial actions against the NFT industry.
The agency argued that both projects offered and sold “unregistered securities” in alleged violation of federal law. Notably, Dapper Labs also faces an ongoing class action lawsuit in which plaintiffs allege that NBA Top Shot Moments, NFTs sold by Dapper Labs, are unregistered securities.
Caution Still Necessary?
The SEC’s closure of the investigation into Dapper Labs, one of the industry’s well-funded companies, may provide some reassurance to participants in the NFT market.
However, securities lawyers caution that not all NFTs can be presumed safe, as the SEC has already indicated that certain transactions in NFTs could be considered securities transactions.
Legal experts such as Philip Moustakis, a securities attorney with Seward & Kissel, caution that the SEC’s closing of the investigation does not necessarily absolve Dapper Labs of any wrongdoing or guarantee an end to securities-related litigation.
Interestingly, the ongoing class action lawsuit against Dapper Labs alleging unregistered securities in NBA Top Shot Moments continues to move through federal court.
SEC’s Ongoing Crackdown
Dapper Labs gained attention in 2017 with the launch of CryptoKitties, a blockchain-based game that allowed players to create and trade NFTs of cartoon cats. The success of CryptoKitties led to significant investments from renowned firms.
Dapper Labs further expanded its presence with Top Shot, an NBA-endorsed marketplace for NFT-based video highlights. However, the NFT market experienced a substantial decline in 2022, leading to layoffs at Dapper Labs.
It is important to highlight that although the case above has been closed, recent developments indicate that the SEC’s enforcement actions and crackdown on the cryptocurrency industry show no signs of abating.
Bitcoinist reported on Wednesday that the regulatory body issued a Wells Notice to Uniswap Labs, the software development company behind the decentralized exchange (DEX) Uniswap.
A Wells Notice serves as formal communication to the company, indicating that the SEC staff has concluded their investigation and is considering recommending enforcement action against them in response to their findings.
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