Sportswear giant Nike is facing a class-action lawsuit alleging a “rug pull” following its decision to shut down its non-fungible token (NFT) platform RTFKT in January.
Filed on April 25 in a Brooklyn federal court, the proposed class suit, led by RTFKT user Jagdeep Cheema, claims that Nike’s promotion and subsequent closure of its sneaker-themed NFT platform resulted in “significant damages” for investors.
The lawsuit contends that the Nike NFTs were unregistered securities, as the company failed to register them with the Securities and Exchange Commission (SEC). It accuses Nike of leveraging its “iconic brand and marketing prowess to hype, promote, and prop up the unregistered securities that RTFKT sold.”
“Because the Nike NFTs derived their value from the success of a given promoter and project — here, Nike and its marketing efforts — investors purchased this digital asset with the hope that its value would increase in the future as the project grows in popularity based on the Nike brand,” the legal filing argues.
The class action seeks $5 million in damages, alleging violations of consumer protection laws and various state unfair trade and competition laws.
While US courts have yet to definitively rule on the legal status of NFTs as securities, the lawsuit argues that such a ruling is not necessary to address the complaint against Nike. This follows recent arguments from NFT marketplace OpenSea to the SEC, urging the regulator to exclude NFTs from federal securities laws.
Nike acquired RTFKT Studios, known for creating virtual sneakers, in 2021. According to the complaint, NFT holders were told the tokens could be traded peer-to-peer and used in challenges and quests for rewards.