Judge to Hear Pretrial Arguments in DraftKings Case Involving Digital Cards Classified as Securities

A U.S. judge sitting in a Massachusetts court has refused to dismiss a class action suit against DraftKings over whether its online trading cards are securities, allowing the case to move forward.

Buyers of DraftKings NFTs initiated the dispute with the claim that such contracts are investment contracts and should be regulated as securities.

Application of Howey Test

The court found that digital cards purchased through the Marketplace were securities under the Howey test. In general, there’s a trend in rigorous inquiry on this issue and tightening attempts.

The plaintiffs argue that investment in DraftKings’ digital trading cards was with an expectation of profits, predominantly from the efforts of DraftKings, furthering a joint enterprise, hence meeting the test requirement for Howey.

Legal Review

Additionally, this case sets a precedent for how future U.S. law will view other digital assets. The reason behind this is that NFTs blur the lines between digital collectibles and investment assets; this case could very well reshape the regulatory landscape across the entire industry.

The case shows further legal challenges to the companies acting in the framework of digital assets. DraftKings’ position, claiming that its NFTs are to be incorporated into the gameplay rather than merely serve as an investment tool, does quite well with the whole complexity of modern digital assets.

As this case proceeds further, the business repercussions are various coming at a time of stringent oversight by the regulator and the courts in defining the legal status of NFTs and other digital assets.

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