DraftKings to Pay $10M to Settle NFT Lawsuit
DraftKings has agreed to a $10 million cash settlement to resolve an 18-month class action lawsuit concerning the closure of its Reignmaker NFT marketplace. The settlement, which requires court approval, will put an end to a legal dispute between the company and customers who had purchased non-fungible tokens (NFTs) on the now-defunct platform. The lawsuit accused DraftKings of selling unregistered securities in the form of digital trading cards, which allegedly caused financial losses for buyers.
LISTEN TO THIS ARTICLE:On February 28, Boston federal Judge Denise Casper granted preliminary approval for the settlement following a motion filed by lead plaintiff Justin Dufoe two days earlier. The motion outlines that the $10 million settlement will be used to compensate affected customers, though various deductions—including administrative costs, taxes, and attorney fees—will lower the final payout amount distributed to class members.
Related: DraftKings Shuts Down NFT Marketplace as Class Action Lawsuit Heats UpA portion of the settlement includes a $50,000 service award for Dufoe in recognition of his role as the lead plaintiff. Legal fees could account for up to one-third of the total settlement fund. The motion notes that the agreement was reached after extensive investigation and negotiations, with both sides opting to settle to avoid prolonged litigation that could further drain financial resources.
Once finalized, the settlement will bring an end to legal proceedings that also named DraftKings co-founders Jason Robins and Matt Kalish, as well as Jason Park, another company executive. The lawsuit, originally filed in March 2023, argued that DraftKings' NFTs met the legal definition of investment contracts under U.S. securities law and should have been registered accordingly.
According to the amended complaint, company executives were aware that the NFTs functioned as securities and yet failed to register them as required by federal and state laws. The lawsuit also alleged that DraftKings made hundreds of millions of dollars from the sale of these unregistered securities.
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Dufoe, who initiated the lawsuit, claimed he lost nearly $14,000 due to declines in the value of DraftKings NFTs he either sold or continued to hold. In response to the allegations, DraftKings sought to have the case dismissed in September 2023, arguing that its NFTs did not constitute investment contracts under securities law.
However, in July 2024, Judge Casper ruled in favor of allowing the case to move forward. Shortly after, DraftKings shut down Reignmaker, attributing the closure to recent legal developments.
Dufoe's motion asserts that DraftKings' decision to shutter the platform, along with its subsequent offer to reimburse some investors at only a fraction of their original investments, effectively rendered the NFTs worthless. The motion further states that settlement discussions began after the platform's shutdown.
The motion estimates that potential damages from the case could be anywhere between $18 million and $58 million. It argues that the $10 million settlement represents approximately 26% of half of the estimated recoverable losses and characterizes this as a favorable resolution under the circumstances. The agreement is expected to benefit a broad group of affected individuals, with estimates suggesting more than 175,000 class members may qualify for compensation.
The settlement class includes all individuals and entities that engaged in transactions involving NFTs in a DraftKings account during the relevant period, which extends from August 11, 2021, through the date of judgment. This includes those who purchased, acquired, sold, disposed of, owned, or otherwise transacted with NFTs through the DraftKings marketplace.
This marks the second NFT-related legal settlement for DraftKings this year. In January, the company settled a separate dispute with the NFL Players Association for an undisclosed amount. That case involved allegations that DraftKings failed to compensate the NFLPA for using player likenesses in its NFT products.
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