Nike entered the NFT space in December 2021 with its acquisition of the digital collectibles firm RTFKT. The deal, struck at the height of the crypto boom, was described by Nike President and CEO John Donahoe as a move to “accelerate Nike’s digital transformation” and to serve “athletes and creators at the intersection of sport, creativity, gaming, and culture”. RTFKT, which had recently been valued at $33.3 million brought with it a portfolio of high-profile NFT projects, including Clone X – a collaboration with Japanese artist Takashi Murakami featuring 20,000 unique 3D avatar NFTs.
Nike’s NFTs, often emblazoned with the iconic Swoosh, were sold on platforms like OpenSea and traded peer-to-peer on secondary markets. Nike profited not only from initial sales but also from transaction fees on each secondary sale. The complaint alleges that Nike created a “gamified ecosystem” where NFTs were used to complete challenges and quests, offering rewards such as limited-edition physical Nike products.
The complaint states that Nike, now being sued for $5 million, “had already raked in tens of millions of dollars in revenue from the Nike NFTs, exploiting the legendary status of the Nike brand and its iconic Swoosh.”
On December 2, 2024, RTFKT announced via a tweet from its official X account that it was winding down operations by January 2025, framing the closure as “A New Chapter for RTFKT.” The complaint describes this as a “soft rug pull”. The announcement, viewed over 3 million times, sparked over 1,000 comments on X, with collectors claiming the move as a betrayal. One user wrote, “A lot of words to say ‘we’re rugging,’” while another lamented, “biggest soft rug in the industry”.
The complaint states that Nike NFT prices plummeted and have not recovered, as the ecosystem of rewards and promotions that drove value evaporated. Investors, who purchased NFTs expecting ongoing Nike support, were left “holding the bag,” with assets rendered “substantially worthless.”
At the heart of the $5 million lawsuit is the claim that Nike NFTs constitute unregistered securities under U.S. law, specifically violating the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint applies the Howey Test which defines an investment contract as a security if it involves (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) derived from the efforts of others. The Nike NFTs, the plaintiff argues, meet these criteria: investors paid for NFTs, participated in a common enterprise tied to Nike’s promotional efforts, expected profits through secondary market trading or quest rewards, and relied on Nike’s managerial activities to maintain value.
The complaint draws on SEC precedents, such as SEC v. Stoner Cats (2023) and SEC v. Impact Theory (2023), where NFTs were deemed unregistered securities. It also cites judicial rulings like SEC v. Kik (2020) and SEC v. Telegram (2020), reinforcing that digital assets can fall under securities law if their value hinges on promoter efforts. Nike’s failure to register the NFTs with the SEC, the plaintiff alleges, deprived investors of critical disclosures, particularly retail investors lacking the sophistication to evaluate risks.
Beyond securities violations, the lawsuit accuses Nike of deceptive practices under state laws, including New York’s General Business Law § 349, California’s Unfair Competition Law, Florida’s Deceptive and Unfair Trade Practices Act, and Oregon’s Unlawful Trade Practices Act. These claims center on Nike’s alleged misrepresentation of the NFTs’ value and the rug pull’s deceptive impact.
The lawsuit challenges the narrative of NFTs as mere digital collectibles or art. “The economic reality is telling,” the complaint states. “If the Nike NFTs were truly being bought as digital collectibles or works of art, this would not be the case. For instance, when an artist dies or otherwise stops producing art, the artist’s work typically goes up in value.” Unlike traditional art markets, the Nike NFTs’ value was tethered to Nike’s ongoing promotions, not intrinsic artistic merit. This distinction underscores the plaintiff’s argument that the NFTs functioned as investment contracts, not cultural artefacts.
The complaint suggests that Nike’s gamified ecosystem with quests and exclusive rewards which prioritised speculative trading over artistic value, aligning more with financial instruments than art pieces.
The lawsuit seeks class action certification for thousands of Nike NFT purchasers, damages to be determined at trial, restitution, injunctive relief, and a declaration that Nike violated securities and state laws. Its outcome could reshape how brands engage with NFTs, particularly regarding compliance with securities regulations and the risks of abrupt project terminations. For the art world, the case questions the dual nature of certain NFTs’ as both creative expressions and speculative assets.
