A New York federal judge on Tuesday gave initial approval to a proposed $4 million settlement between the firm behind NBA-focused non-fungible tokens and a class of purchasers who accused the digital assets company of selling the digital assets as unregistered securities.

Under the proposed settlement, which was filed Monday, Dapper Labs will pay the sum for distribution to a newly certified class of those who purchased or acquired NBA Top Shot Moments between June 15, 2020, and December 27, 2021.

"The court finds that (a) the settlement stipulation resulted from good faith, arm's length negotiations with the benefit and aid of an experienced mediator, and (b) the settlement stipulation is sufficiently fair, reasonable and adequate to the settlement class member," U.S. District Judge Victor Marrero wrote in his order.

Dapper Labs has also pledged to undertake or continue certain business practices to address the aspects of the NFT sales that purchasers said made them more like investment contracts.

Throughout the three-year-long litigation, Dapper Labs maintained that its tokens, which depict moments from professional basketball games, were no more securities than trading cards. In a statement to social media site X, Dapper Labs CEO Roham Gharegozlou, who was also a named defendant, said the settlement affirmed that the tokens are not securities and their underlying network known as Flow is decentralized.

"These were the main allegations we wanted to prove, and continuing to litigate would have been a distraction from our core mission," said Gharegozlou.

The purchasers, led by name plaintiffs Jeeun Friel, Gary Leuis, and John Austin, had argued that though NFTs aren't broadly thought to be securities, Dapper had sold Top Shot Moments in a way that made them investment contracts. A February 2023 ruling on Dapper's attempt to toss the case agreed with the buyers, finding that Dapper's alleged control over the Flow network and its marketing of the NFTs as a way to turn a profit was enough to send the case to discovery.

However, Gharegozlou said on X that "after discovery, it was understood and agreed that [the Flow blockchain] is a decentralized public network and that digital collectibles like [Top Shot Moments] are not securities in the same way trading cards are not securities."

Counsel for the purchasers did not immediately respond to a request for comment on Tuesday.

Throughout the litigation, which began in New York state court in May 2021 before being removed to federal court that summer, Dapper undertook certain actions that mitigated the securities-like characteristics of the sale, according to the settlement. That included relinquishing control of the Flow blockchain, permitting other marketplaces to sell Top Shot tokens, and correcting certain withdrawal delays.

The settlement saw Dapper acknowledge that the litigation was a "substantial contributing factor" to making these changes and commit to their upkeep, though there is no admission of wrongdoing. The firm will also transfer certain holdings of Flow tokens to a decentralized entity for the upkeep of the ecosystem and conduct employee training on securities laws, marketing, and an internal code of conduct.

"Importantly, the business changes are designed to address the allegation that the Moments were unregistered securities and improve Dapper's operations," said the buyers in a brief supporting the proposed settlement.

Gharegozlou said on X that the settlement involved the firm "reaffirming its commitment to the decentralization of Flow."

The class is represented by Laurence M. Rosen, Phillip Kim, and Michael Cohen of The Rosen Law Firm PA.

Dapper Labs and Gharegozlou are represented by Kenneth P. Herzinger, Sean D. Unger, and Erin Zatlin of Paul Hastings LLP.

The case is Friel v. Dapper Labs Inc. et al., case number 1:21-cv-05837, in the U.S. District Court for the Southern District of New York.