Legal Action Initiated Regarding Nike's Failed NFT Venture
Title: Nike Faces Legal Heat Over Alleged Unregistered NFT Securities
In an unprecedented move, global sports giant Nike is entangled in a class action lawsuit filed in the US District Court for the Eastern District of New York, initiated by dissatisfied NFT purchasers. Led by Australian resident Jagdeep Cheema, the lawsuit claims Nike deceitfully marketed its NFT offerings as stable investments, only to see the digital venture abruptly shut down, leading to massive financial losses.
The lawsuit, which includes complaints from NFT holders across multiple states like New York, California, Florida, and Oregon, centers around the notion that Nike's NFTs were effectively unregistered securities. The plaintiffs argue that Nike neglected to disclose regulatory risks associated with these digital assets and failed to conform to US securities laws requirements. They further allege that, had they known about the unregistered securities status and Nike's power to terminate the project so swiftly, none of the petitioners would have bought the NFTs.
Background
Nike acquired RTFKT, a plucky digital collectibles company, in December 2021, marking the company's strategic foray into the digital collectible realm. RTFKT achieved considerable attention for its virtual sneaker NFTs and collaborations with artists and brands. However, after a shock reveal in December 2024, Nike announced RTFKT's closure, attributing the move to a shift in corporate strategy. This decision triggered a significant decline in the value of RTFKT NFTs, leaving many investors with worthless assets, along with complaints about nagging technical issues like the replacement of high-value images of Nike's Clone X series with plain messaging.
Allegations
The complaint, represented by The Rosen Law Firm's Phillip Kim, accuses Nike of infringing upon consumer protection laws and securities regulations through alleged non-disclosure of risks and neglecting to register the NFTs as securities. The plaintiffs insinuate that Nike's actions resemble a 'rug pull,' a term often used in the crypto community to describe a scheme where a project is abruptly terminated, stranding investors with worthless assets.
NFTs and US Law
Under existing legal standards, NFTs are not considered securities by default. Instead, the Howey Test, established by the US Supreme Court in 1946, examines whether an arrangement involves an investment of money in a common enterprise, with an expectation of profit derived from the efforts of others. If NFTs are marketed or structured in a manner that appeals to investors' profit-seeking motivations, they might cross over into the securities category. This could include situations where a company issues a series of NFTs linked to real-world assets and actively promotes the notion that the value of the NFTs will grow due to the company's continued business efforts.
In the absence of widespread precedent, most SEC enforcement actions in comparable cases have resulted in settlement. One notable example involves Impact Theory, a media company based in Los Angeles, which raised approximately $30 million from investors by promoting its NFTs as investments in its business ventures. Without admitting or denying the findings, Impact Theory agreed to a 2023 cease-and-desist order from the SEC and paid over $6 million in fines, while also pledging to destroy the NFTs and eliminate royalties from future secondary market transactions.
Conversely, in August 2024, OpenSea, a prominent NFT marketplace, disclosed that it had received a Wells Notice from the SEC, indicating potential enforcement action. The SEC alleged that NFTs sold on OpenSea's platform might be unregistered securities. OpenSea's CEO, Devin Finzer, stated that NFTs are fundamentally creative goods and should not be regulated like traditional securities, and in February 2025, it was reported that the SEC had concluded its investigation without pursuing enforcement action against OpenSea.
This lawsuit against Nike sheds light on the urgent need for a streamlined regulatory framework governing digital assets. The case could set a precedent for how NFTs are treated under securities laws, thereby influencing how companies handle the marketing and administration of digital collectibles.
- Due to the lawsuit's allegations, Nike's NFTs are being evaluated under the Howey Test to determine if they were unregistered securities, potentially setting a precedent for future digital asset regulation.
- In the defendants' argument, Nike misrepresented their NFT offerings as stable investments, failing to disclose associated risks and regulatory issues, and neglected to adhere to US securities laws requirements.
- The closure of Nike's digital venture, RTFKT, following a shift in corporate strategy, resulted in significant financial losses for NFT holders and allegations of misrepresentation, potentially resembling a "rug pull" scenario in the crypto community.
- In the wake of the lawsuit, some engaging in the sale and marketing of NFTs may seek to register those assets purely in the realm of finance to avoid securities-related legal repercussions, given the implications of this case for the NFT and technology-based sports markets.
