Nike's foray into the NFT realm results in a class action litigation
In a surprising turn of events, global sportswear giant Nike is embroiled in a legal battle over its NFT project, 'Nike Cryptokicks.' The collection, launched in 2022 with 20,000 NFTs, reached impressive market values, with some rare items fetching several thousand dollars each, and a select few exceeding $100,000.
However, the landscape has since changed drastically. The value of the 'Nike Cryptokicks' NFTs has plummeted, and a group of investors, led by Jagdeep Cheema, are demanding $5 million in damages, alleging a 'rug pull.' This term refers to a situation where someone releases a token, collects funds, and then abandons the project, causing investors to lose money.
The allegations against Nike are twofold. First, the company is accused of misleading investors into believing the NFTs were not securities. Second, the lawsuit argues that the NFTs, due to their value basis tied to the Nike brand and the profits generated by Nike from both initial sales and trading fees, met the requirements of the Howey test for a security.
The lawsuit represents all investors who purchased NFTs during the controversy. The plaintiffs point to the shutdown of RTFKT, the startup Nike acquired in 2021, in December 2024, as the catalyst for the NFTs' value drop and subsequent legal action. Nike subsequently withdrew from NFTs following RTFKT's closure.
The lawsuit accuses Nike of selling unregistered securities to retail investors who lacked the technical and financial expertise to assess risks. It alleges that Nike failed to uphold the promised enduring value of the NFTs, with the value basis erased after Nike ceased its NFT activities.
This case is unusual as it involves a global sportswear conglomerate like Nike, which initially saw success with investors buying and selling the NFTs on standard platforms. The NFTs, in collaboration with RTFKT, depicted shoes or hoodies for the metaverse.
The lawsuit seeks $5 million in damages as compensation for alleged deception. As the case unfolds, it serves as a reminder for companies in the NFT space to approach projects with transparency and adherence to regulatory requirements.
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