Shaq Is the Latest Celebrity to Be Sued Over Sale of NFTs

Former professional basketball player Shaquille O’Neal is being sued over alleged securities violations related to his NFT collection titled ASTRALs or, The Astral Project, according to a complaint filed in the Southern District of Florida last week.

In the class action lawsuit, Virginia resident Daniel Harper, who invested in Astrals NFTs and later suffered losses after the crypto market tanked, has accused O’Neal of violating Section 15 of the Securities Act of 1933, which requires brokers to be registered with the Securities and Exchange Commission, and for offering and selling unregistered securities.

Listen beautiful relax classics on our Youtube channel.

Astrals was founded by O’Neal and his son Myles in 2022. 3D artist Damien Guimoneau, who is known for his creature design, was brought on to create the look of the project, which features 10,000 NFTs of humanoid animals and creatures brandishing weapons and other accessories. The NFTs were sold on Solana, a popular blockchain similar in function to Ethereum.

O’Neal promoted the project to his millions of fans on social media, offering giveaways, access to private Discord channels, and promising a return on investment, the complaint alleges. In one video posted to social media, O’Neal told his followers, “We’re not stopping until 30 SOL floor,” in other words, O’Neal believed that the least valuable NFT in the Astrals collection would be worth 30 SOL, which at the time was worth around $2,400.

Harper, the plaintiff, bought 96 Astrals over the course of a year. According to a chart Harper provided, the most he spent on one of these NFTs was 13.5 SOL.

As crypto-markets have tumbled over the past year and NFT collectors have found themselves with little to show for their investment, class action lawsuits have been filed around the country, alleging that companies like Yuga Labs and Dapper Labs shilled unregistered securities to a public that did not have the knowledge to accurately assess the novel assets that were being sold to them.

In each of these cases, courts have been applying the Howey test — a common legal test established in 1946 by the U.S. Supreme Court in SEC v. W.J. Howey Co. — to ascertain whether or not the NFT projects in question are securities. Under the Howey test, something is a security if the following four conditions are met: It is an investment of money; There is an expectation of profits from the investment; The investment of money is in a common enterprise and; Any profit comes from the efforts of a promoter or third party.

In Friel v. Dapper Labs, a judge ruled this past February that Dapper Labs’ product, NBA Top Shot NFTs, are securities. The case will now head to trial unless Dapper Labs decides to settle. While no court has ruled that all NFTs should be considered securities, the Dapper Labs ruling gives us some insight into how judges are interpreting novel assets and the novel ways in which they have been promoted. For example, while Dapper Labs never used to the word “profit” in their promotion of their NFTs, the case judge found that Dapper Labs found other ways to signal a promise of profits.

“Although the literal word ‘profit’ is not included in any of the Tweets, the ‘rocket ship’ emoji, ‘stock chart’ emoji, and ‘money bags’ emoji objectively mean one thing: a financial return on investment,” read the judge’s decision.

If the case is not dismissed, the assigned judge will likely apply the Howey test to the Astrals.

O’Neal is far from the only celebrity to find himself in legal trouble over NFTs. Madonna, Justin Bieber, and Jimmy Fallon were recently named in a class action lawsuit that alleges that they promoted the sale of Bored Ape Yacht Club NFTs without disclosing that they were being compensated.


No votes yet.
Please wait...