Nike sued to the tune of $5 million in the Eastern District of New York. The complaints allege that the athletic apparel behemoth breached securities laws in its deployments of non-fungible tokens (NFTs) associated with RTFKT, the virtual sneaker firm it bought in 2021. That lawsuit alleges that Nike leveraged its brand recognition to the success of the digital collectibles, which the plaintiffs allege were unregistered securities.
The complaint alleges that Nike carried out what is termed as a “soft rug pull.” Without any explanation, they tweeted in December 2023 that RTFKT was going to be “winding down” business. The complaint alleges that this announcement triggered a significant decrease in secondary market prices for Nike NFTs. Fortunately, investors are not entitled to the short straw of devalued and illiquid assets.
"The Nike NFTs were never registered as such," - complaint
Jagdeep Cheema represents the plaintiffs in this case. They claim they never would have purchased the Nike NFTs had they known the true nature of the investment. According to the lawsuit, investors were shocked when Nike took these actions.
"One does not expect it from Nike," - complaint
Adding to the controversy, Nike's NFTs, including the Clone X collection co-created with artist Takashi Murakami, temporarily vanished from display due to a Cloudflare hosting issue. Though unrelated to the lawsuit, this incident only deepened worries over the legitimacy and durability of Nike’s NFT endeavors.
The lawsuit offers an important opportunity to highlight the dangers of celebrity-endorsed NFTs. Huge investor losses would be inevitable should these firms pivot in an unexpected new direction. With Nike's annual revenue hovering around $50 billion, the $5 million lawsuit represents a small fraction of the company's overall financial picture. The legal challenge may still create important precedent for other future cases combining NFTs and securities laws.
The plaintiffs' claim they suffered financial damages due to Nike's actions and are seeking compensation for their losses. They accuse Nike of failing to adequately disclose the dangers associated with its NFT products. In addition, they claim that the company deceived investors about the long-term prospects of the RTFKT undertaking.
"would never have purchased the Nike NFTs at the prices they did, or at all," - plaintiffs, Jagdeep Cheema
