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Nike is facing a class action lawsuit from investors who allege the company caused major financial losses by shutting down RTFKT, its Web3 subsidiary.
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The plaintiffs claim the sportingwear giant promoted unregistered securities through RTFKT NFTs and later abandoned the project without notice.
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They seek over $5 million in damages, arguing they would not have invested in the NFTs if they had known the risks involved with the assets.
Nike’s closure of RTFKT ignites a class action, with investors alleging significant losses from unregistered NFTs, seeking over $5 million in damages.
Nike Accused of Promoting Unregistered Securities Through NFTs
According to court documents, Nike allegedly “rugpulled” the community by closing RTFKT and cutting off demand for the associated digital assets. This action has led to a substantial loss of investment for individuals who believed in the potential of Nike’s digital assets.
The plaintiffs argue that Nike used its brand power and marketing expertise to promote what they describe as unregistered securities before suddenly abandoning the project. Claiming that the NFT project, at its peak, generated approximately $168 million, they highlight the unanticipated collapse of value post-closure.
“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,” the lawsuit stated.
The lawsuit also emphasizes that promises of completing quests and unlocking limited-edition products were key motivations for purchasing the NFTs. With the collapse of RTFKT’s operations, these incentives evaporated, leaving investors with worthless digital assets.
The plaintiffs maintain that Nike NFTs qualify as securities under federal law, arguing that Nike failed to register the digital assets with the US Securities and Exchange Commission (SEC) or disclose the associated risks. They insist they would not have purchased these assets at inflated prices had they known the true risks involved.
“Plaintiff and others would never have purchased the Nike NFTs at the prices they did, or at all, had they known that the Nike NFTs were unregistered securities or that Nike would cause the rug to be pulled out from under them,” the investors argued.
The plaintiffs seek a jury trial and damages exceeding $5 million for the alleged violations of consumer protection laws in New York, California, Florida, and Oregon.
RTFKT Suffers Technical Glitches
Meanwhile, this lawsuit comes as investor frustrations were further amplified on April 24 when technical issues prevented the Nike-linked NFT images from displaying. RTFKT’s head of technology, Samuel Cardillo, explained that the outage resulted from a Cloudflare contract ending earlier than expected.
“Beginning of April, the decision to stay on Cloudflare Free was (finally) approved and I started the work to move the infrastructure. Somehow this morning Cloudflare decided to move to the Free plan few days before the end of the contract which also triggered that bug in which Cloudflare refuses to stream images and videos,” Cardillo explained.
While most images have since been restored, Cardillo is now moving RTFKT’s NFT files to Arweave’s decentralized storage platform using AR Drive. This critical step aims to protect NFT holders from similar outages in the future.
Conclusion
The ongoing legal battle poses significant implications for Nike and its NFT strategy and highlights the broader concerns regarding consumer protections in the rapidly-evolving NFT space. Investors are left to navigate the fallout, with many demanding clarity and accountability as the case unfolds.
