To the Moon? Emojis can be financial advice, says judge
- Reference: 1677519014
- News link: https://www.theregister.co.uk/2023/02/27/emoji_financial_advice/
- Source link:
Southern District of New York judge Victor Marrero was talking about the use of rocket ships, positive stock charts and money bag emojis by people promoting NFT projects like Dapper Labs and the NBA's Top Shots Moments. The organizations are being sued in a class action case alleging they violated US securities laws.
Moments are NFTs of basketball game highlights designed to be similar in collectibility to physical sports cards. The question in this case is akin to several other crypto cases which have tried to figure out whether cryptocurrencies or NFTs are securities or not.
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"The foundational question of liability … is whether Dapper Labs's offer and sale of Moments amounts to an offer or sale of a security," to which Marrero believes there's at least enough cause to not dismiss the case outright.
NFT? Security
Dapper Labs filed a request to have the case dismissed last August, and in a [2]decision [PDF] filed last week, Marrero said the plaintiffs had adequately shown that NBA Top Shots were an investment vehicle as defined by the Howey Test.
According to Marrero's decision, Howey requires plaintiffs to prove three things: that Moments were first an investment of money that, second, was made in a common enterprise, and third, with the expectation of profit "from the essential entrepreneurial or managerial efforts of others."
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As far as Marrero is concerned, the plaintiffs' claims "render each consideration under Howey facially plausible."
To summarize, it's obvious money was invested in Moments – and a lot of it. A single Moment of a LeBron James dunk sold for $208,000, while one investor had reportedly purchased Moments worth a total of over $15.6 million.
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Launched in 2020, "by late February 2021, Dapper Labs's combined market capitalization from sales of Moments on the NBA Top Shot application had reached $1.9 billion," Marrero wrote in his decision.
As for why Moments are a common enterprise, the decision turns to the Flow blockchain that Dapper Labs created for NBA Top Shots and other NFT projects. "Plaintiffs allege that Dapper Labs has pooled Moments purchasers' funds to raise additional capital, outside of and along with revenue, to ensure the Flow Blockchain does not collapse." Among other pooling arguments, the judge said the whole affair is certainly a common enterprise.
Third is where those emojis come in.
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"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," Marrero wrote.
[7]Titanic mass grave site to be pillaged for NFTs
[8]NFT vending machine appears in London
[9]Bill Gates says NFTs '100% based on greater fool theory' amid crypto cataclysm
[10]Crooks steal NFTs worth '$3m' in Bored Ape Yacht Club heist
To back that up, Marrero said the court only had to turn to the subjective observations of Moments purchasers who he said made clear the intent was to profit. That LeBron dunk NFT, for example, was purchased for six figures because its buyer believed it "was worth seven figures right away."
Here come the feds
Lawyer Lisa Braganca, a former Securities and Exchange Commission branch chief whose law firm specializes in recovering investment losses and defending financial professionals, [11]said in a tweet that "users of these emojis are hereby warned of the legal consequence of their use."
With a federal court having issued a decision that NFTs are classifiable as securities, expect more legal pushes from the government to take action on the crypto world, of which it has been [12]very [13]interested [14]in of late.
The US administration isn't alone: South Korea recently said it would [15]begin regulating cryptocurrencies and virtual assets (i.e. NFTs) as securities, and Hong Kong made a [16]similar decision last week.
The plaintiffs in the US class action are asking for a jury trial and an award of damages and other compensation. NBA Top Shots hit a two-year low for monthly sales in [17]November last year after four months of steady declines, falling to volumes not seen since it launched in December 2020. ®
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[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2Y-02FtX6e@amKMtnhBxJjgAAAIY&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://regmedia.co.uk/2023/02/27/dapper-labs-dismissal-rejection-decision.pdf
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Y-02FtX6e@amKMtnhBxJjgAAAIY&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Y-02FtX6e@amKMtnhBxJjgAAAIY&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Y-02FtX6e@amKMtnhBxJjgAAAIY&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[6] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Y-02FtX6e@amKMtnhBxJjgAAAIY&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[7] https://www.theregister.com/2023/02/22/titanic_nfts/
[8] https://www.theregister.com/2022/11/04/nft_vending_machine/
[9] https://www.theregister.com/2022/06/16/bill_gates_nfts/
[10] https://www.theregister.com/2022/04/26/nft_theft_bored_ape_yacht_club/
[11] https://twitter.com/LisaBraganca/status/1628868429540126720?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1628868429540126720%7Ctwgr%5E790f1deb2026e4ae586c7ddabf897634ac23eaa7%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fwww.makeuseof.com%2Ffederal-judge-rules-emojis-count-financial-advice%2F
[12] https://www.theregister.com/2022/12/15/antimoney_laundering_crypto_bill/
[13] https://www.theregister.com/2022/07/08/us_digital_asset_regulation_framework/
[14] https://www.theregister.com/2023/02/07/epa_bitcoin_energy/
[15] https://www.theregister.com/2023/02/07/south_korea_crypto_securities_regulation/
[16] https://www.theregister.com/2023/02/21/hong_kong_to_regulate_cryptocurrency/
[17] https://decrypt.co/113409/nba-top-shot-nfts-worst-month-since-2020
[18] https://whitepapers.theregister.com/
Isn't the only reason people buy baseball cards as collectables is that they think they will go up?
So doesn't this make the whole art market, from collectable plates in the sunday comics to Van Gogh subject to the SEC ?
There is a big difference depending on who says the cards will go up in price: if it is some rando on a webforum (in which case it will be my own fault whether I follow their advice or not); or the actual bubblegum/cigarrettes distribuitor of the cards
I think this case falls on the second category.
Some people buy works of art because they like looking at them (or, in the case of music, listening to them). I have some original artwork (an oil / acrylic painting) hanging on my wall, which cost me about £700. I really enjoy it. I did not buy it as an investment, but to look at. Some people collect postage stamps, coins, coasters, plates from Poole Pottery* or other things for the pure enjoyment. I could equally well be accused of collecting cameras (if you'd seen my photographs, you would not accuse me of being a photographer).
The price or value of a 'work of art' is mostly what one person will pay for it and what another person will accept for it. The da Vinci exhibition in the National Gallery in London a few years ago was amazing. The best I have ever attended (better than the more recent Vermeer exhibition in London, but I've not (yet) attended the current one in Amsterdam), I can understand why someone would spend millions of dollars / pounds / euros on them (if they could spare the cash).
*https://www.poolepottery.co.uk
Using emojis now comes with legal warnings
> the 'rocket ship' emoji, 'stock chart' emoji, and 'money bags' emoji objectively mean one thing: a financial return on investment,
> "users of these emojis are hereby warned of the legal consequence of their use."
So does this mean I can no longer use the rocket ship emoji to indicate I'm going to take my lady friend to the stars tonight? Or if I do, it now means I'm expecting a *financial* return on my investment? That's not going to go down well!
How far will this spread?
Re: the rocket ship emoji objectively mean one thing: a financial return on investment
Ah, but what about a Virgin rocket?
Surely a canny defence lawyer could argue that "your investment could crash as easily as it rises"?
Re: Using emojis now comes with legal warnings
> I can no longer use the rocket ship emoji to indicate I'm going to take my lady friend to the stars tonight?
Yes, what you can't do is publish a list of stocks with a rocket emoji or a poo emoji next to them and then claim you never made any representation as to buy or sell - and so that you happened to buy or short the same stocks beforehand is totally irrelevant
...a common enterprise...
A lesser version of Starship Enterprise, but nevertheless a rocket ship.
emojis used in certain situations can only "objectively mean one thing" – financial advice
That would only be true if they'd used the turd emoji, as that would be proper advice on investing in these schemes. As they used emoji's indicating rocketing value, the objective meaning was the usual nonsense hype about how these worthless scraps of data are going to make you super rich - which is not really "advice".
Small correction needed in article
"while one investor gambler had reportedly purchased"
Say what?
"with the expectation of profit 'from the essential entrepreneurial or managerial efforts of others.' "
What exactly was Dapper Labs supposed to be do to generate profit for the NFTs? I'm not going to dig into the case, but this strikes me as...weird. The value of a collectible is what people are willing to pay for it. The main difference (JUST in this context) between an NFT & the Mona Lisa is the nature of the fire that can destroy them.
BTW, this is why baseball cards are not at issue--there is no one driving their value except the market.
Obviously.
If you asked a financial advisor whether you should buy IBM stocks and he said "Oui", then (despite being a pretentious prick) he's given you a clear yes. Same applies to a thumb up or any other clear affirmative. Surely,
Is this finally a legal precedent...
... for "context is everything"
If it looks like a duck, walks like a duck and quacks like a duck, it's probably an NFT (sorry, duck). Emojis which indicate profit, money etc are equivalent to words, IMHO.
As a child I collected, 'collectable' cards, which came with chewing or bubble gum. Each pack cost a few pennies. Previously there were cigarette cards of famous cricketers (in the UK), or baseball players (in the USA). but the selling company never expected to make a profit from them, it was more of a marketing enticement (so that children would pester their parents to buy said consumable so that they they could complete a 'set').
I must say that I have no NFTs, no cryptocurrency investments, and am deeply suspicious fo them (I have a Ph.D. in pure mathematics, published a paper on cryptography and worked for over 20 years in information security). If you can't scratch glass with it, it ain't hard currency.*
*Note this is not financial advice, the author owned some shares valued at 499p/share a few years ago and hesitated about selling them. They are now worth 139p/share. The only financial advice I am at all qualified to give is never take financial advice from me.