Former professional basketball player Shaquille O’Neal is facing a lawsuit accusing him of securities violations related to his NFT collection, ASTRALs, also known as the Astrals Project. The complaint, filed in the Southern District of Florida, alleges that O’Neal violated the Securities Act of 1933 by offering and selling unregistered securities.
The class action lawsuit was brought forth by Daniel Harper, a Virginia resident who invested in Astrals NFTs and suffered losses when the cryptocurrency market experienced a downturn. Harper claims that O’Neal violated Section 15 of the Securities Act, which mandates brokers to be registered with the Securities and Exchange Commission.
O’Neal and his son Myles founded Astrals in 2022, collaborating with freelance creature artist Damien Guimoneau to create a collection of 10,000 NFTs depicting humanoid animals and creatures wielding weapons and accessories. The NFTs were sold on Solana, a popular blockchain platform similar to Ethereum.
According to the lawsuit, O’Neal actively promoted the Astrals Project to his millions of social media followers, offering giveaways, and access to private Discord channels, and promising a return on investment. In one video, O’Neal stated that the least valuable NFT in the Astrals collection would be worth 30 SOL, equivalent to around $2,400 at the time.
The plaintiff, Daniel Harper, purchased 96 Astrals over the course of a year. Records indicate that his highest expenditure on a single NFT was 13.5 SOL. As the crypto markets experienced volatility and many NFT investors found themselves with little to show for their investments, class action lawsuits have emerged, alleging that companies like Yuga Labs and Dapper Labs promoted unregistered securities to uninformed buyers.
Courts have been applying the Howey test, established by the United States Supreme Court in SEC v. W.J. Howey Co. in 1946, to determine whether these NFT projects qualify as securities. The Howey test examines various factors, including the investment of money, expectation of profits, common enterprise, and reliance on the efforts of a promoter or third party.
In a previous case, Friel v. Dapper Labs, a judge ruled that Dapper Labs’ NBA Top Shot NFTs were indeed securities. This ruling sheds light on how judges interpret novel assets and their promotional tactics. Even without explicitly using the word “profit,” the judge concluded that the promotion implied a promise of financial returns through the use of emojis and symbols associated with financial gain.
If the lawsuit against Shaquille O’Neal proceeds, it is likely that the court will apply the Howey test to determine the nature of the Astrals collection.
Shaquille O’Neal joins a list of celebrities facing legal issues related to NFTs. Madonna, Justin Bieber, and Jimmy Fallon were recently named in a class action lawsuit that alleges they promoted the sale of Bored Ape Yacht Club NFTs without proper disclosure of their compensation arrangements.
Legal battles surrounding NFTs continue to unfold as courts grapple with the classification of these digital assets and the responsibilities of those involved in their promotion and sale.