Controversy Brews Over DraftKings’ $10 Million NFT Settlement

In a brand new twist within the DraftKings NFT saga, a former top investor has raised a proper objection to the proposed settlement of a securities class motion. The $10 million deal, which has been on the table for a while, is now facing scrutiny from Brad Wyatt, a Massachusetts resident and former top 10 holder of NFL Reignmaker NFTs. Wyatt argues the settlement plan does a disservice to some investors and mischaracterizes the damages involved.

Wyatt’s Key Concerns

On July 14, Wyatt filed a three-page objection, calling out the settlement’s Plan of Allocation, which aspects in “Prize Receipts” as a deduction to find out each investor’s payout. He insists this system skews the economic reality and strays from the settlement’s aim of compensating those that suffered financial harm.

This is not the primary pushback against the settlement—Wyatt follows two other investors who’ve raised concerns since May.

The Crux of the Legal Debate

The lawsuit, led by plaintiff Justin Dufoe, accuses DraftKings of breaching federal securities laws by offering NFTs without registering them as investment contracts. Although DraftKings denies any wrongdoing, they agreed in April to a mediated settlement involving a $10 million fund for affected users, with allocations for legal fees and repair awards.

Wyatt’s objection zeroes in on how “Individual Recognised Loss” (IR) is calculated, particularly the deductions for “Prize Receipts” (PR) tied to fantasy contests on the DraftKings platform. He argues that these receipts don’t mitigate the economic harm experienced by the investors.

Wyatt’s Argument

“Counting these Prize Receipts doesn’t counterbalance the economic damage inflicted on class members. The settlement concerning NFT securities on DraftKings Marketplace has nothing to do with any prize winnings from DraftKings Fantasy Sport contests,” Wyatt contends.

Allegations of Inflated Valuations

Wyatt further accuses DraftKings of inflating the fair market value of those prizes, leading to an “unfair reduction” of every participant’s calculated loss. He urges the court to adopt a compensation formula that excludes these Prize Receipts entirely, aiming for a fairer distribution of damages in step with securities law principles.

According to transaction data from DraftKings, Wyatt invested nearly $462,000 in NFTs but saw only about $245,000 in returns from resales and marketplace closures. Prize Receipts added one other $252,000 in notional value, which Wyatt argues shouldn’t be regarded as offsetting his money losses.

Marketplace Closure and Settlement Context

DraftKings shut down its NFT marketplace in March 2024, not long after a federal court refused to toss out the securities lawsuit. The legal team representing Dufoe notes that the timing could indicate DraftKings’ awareness of litigation risks. They maintain that the $10 million fund is a powerful final result given the uncertain legal environment.

A final approval hearing has yet to be scheduled, and the window for objections stays open until three weeks before that date. The court will soon determine if the settlement is fair, reasonable, and adequate in light of the objections presented.

Share

Image Credit: next.io