DraftKings has agreed to a $10 million settlement to resolve a class-action lawsuit alleging that its non-fungible tokens (NFTs) were unregistered securities. 

The lawsuit, filed in the US District Court for the District of Massachusetts, accused the company of violating securities laws by offering and facilitating secondary market transactions of NFTs without regulatory approval.

The legal battle began in March 2023 when lead plaintiff Justin Dufoe filed a complaint on behalf of investors who purchased DraftKings NFTs between August 11, 2021, and the present. Plaintiffs argued that DraftKings marketed its NFTs in a way that led buyers to expect profits, making them functionally equivalent to securities. 

The company controlled the NFT ecosystem, charging a 5% commission on all secondary sales and restricting transactions to its proprietary DK Marketplace. Additionally, DraftKings introduced "gamified" NFTs, which allowed users to earn cash prizes, reinforcing claims that the NFTs were investment products rather than simple digital collectibles.

In July 2024, US District Judge Denise J. Casper denied DraftKings' motion to dismiss, allowing the lawsuit to move forward. Shortly after, the company shut down its NFT marketplace, leaving many investors with assets that lost their trading functionality and value. 

The decision to settle for $10 million aims to compensate affected investors while avoiding further litigation. DraftKings has denied any wrongdoing but agreed to the settlement to resolve the claims.

Under the settlement, eligible investors—those who bought, sold, or transacted DraftKings NFTs during the class period—will be entitled to compensation based on their losses. The $10 million fund will also cover attorney fees and administrative costs, with legal representatives potentially seeking up to one-third of the fund as compensation.

This case is a significant development in the ongoing regulatory scrutiny of NFTs and digital assets. It follows a broader trend in which courts and regulatory agencies, including the US Securities and Exchange Commission (SEC), are applying traditional securities laws to blockchain-based assets. 

The outcome of the DraftKings case could set a precedent for other companies in the NFT space facing similar legal challenges.

The settlement still requires court approval, with a preliminary hearing set to review the agreement. If approved, affected investors will receive notifications with options to opt out, object, or submit claims.