Nike's foray into the world of NFTs results in a class action lawsuit being filed
Nike Faces $5 Million Lawsuit Over Alleged NFT "Rug Pull"
A group of investors has filed a lawsuit against Nike, alleging the sportswear giant engaged in an unauthorized issuance of securities related to non-fungible tokens (NFTs) and a "rug pull" that led to significant financial harm.
The lawsuit, filed by attorney Jagdeep Cheema, claims that Nike misled investors into believing the NFTs were not securities, leading to a false valuation. The plaintiffs, whose specific names are not detailed in the available search results, seek $5 million in damages to compensate for the alleged deception.
The controversy stems from Nike's foray into the digital world. In 2021, the company acquired the startup RTFKT and issued NFTs depicting shoes or hoodies. The "Nike Cryptokicks" collection, consisting of 20,000 NFTs, was launched in April 2022.
Initially, the NFT project went well, with prices climbing sharply in 2021 and 2022. However, prices plummeted after RTFKT's shutdown in December 2024, leading to a "rug pull" scenario. This is unusual for a global sportswear conglomerate like Nike, which boasts an annual revenue of $50 billion.
The allegation is that Nike sold unregistered securities to retail investors who lacked the technical and financial expertise to assess risks. The lawsuit argues that the NFTs met the requirements of the Howey test for a security, as they were investments of money in a common enterprise with the expectation of profits derived from the efforts of others.
The tokens still exist, but the value basis, the backing from the Nike brand, was erased. Rare items in the "Nike Cryptokicks" collection had exceeded $100,000 in market value, but their worth has since diminished significantly.
Nike profited from both the initial sales and a trading fee collected in the secondary market. However, the company has since completely withdrawn from NFTs, further strengthening the investors' argument that the NFTs were securities.
The NFTs were offered publicly, with investors buying them with the hope that Nike's actions would increase their value or yield profit. The lawsuit contends that Nike failed to uphold the promised enduring value of the NFTs by ceasing its NFT activities.
As the case unfolds, it will be interesting to see how Nike responds to these allegations and whether the court will rule in favour of the investors. The outcome could have significant implications for other companies considering entering the NFT market.
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