Nike is facing a class-action lawsuit after being accused of pulling the rug out from under customers by shutting down its NFT platform, RTFKT, earlier this year. A group of RTFKT users led by Jagdeep Cheema, filed a proposed class action in Brooklyn federal court on Apr. 25. They claim that the company faced major losses after Nike heavily promoted its sneaker-themed NFTs to attract investors, only to later shut down the platform.
The filing claimed that the NFTs were unregistered securities because Nike sold them without getting approval from the Securities and Exchange Commission. It also accuses Nike of using its famous brand and robust marketing to hype up and push the unregistered NFTs that RTFKT sold. The lawsuit argued:
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.
CryptoKicks crash: Nike hit with major lawsuit
The lawsuit is seeking $5 million in damages, alleging that Nike violated consumer protection laws and broke several state laws related to unfair trade and competition. A U.S. court hasn’t made a final decision on whether NFTs qualify as securities.
However, in a letter to the SEC on Apr. 9, OpenSea asked the regulator to exclude NFTs from federal securities laws. They argued that NFTs don’t fit the legal definition of security. In its lawsuit against Nike, the group said that the court doesn’t need to decide whether NFTs are legally recognized to address the case.
In 2021, Nike bought RTFKT Studios, known for creating virtual sneakers as NFTs. The complaint claims that Nike promised NFT owners they could trade them on the secondary market and use them to complete challenges or quests for rewards.
Nike’s CryptoKicks NFT collection sold for an average of 3.5 Ethereum (around $8,000) when it launched on Apr. 18, 2022. By Apr. 21, the price had dropped to about 0.009 Ether (roughly $16), according to OpenSea.
