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Dapper Labs will have to defend itself against a lawsuit claiming its Top Shot NFTs are securities after a judge declined to dismiss the case on Wednesday.
The lawsuit, filed in 2021, alleges that Top Shot Moments, an NFT collection that features short clips of NBA highlights, are securities that should have been registered with the Securities and Exchange Commission, according to Bloomberg.
The collection, which was created in partnership with the NBA and NBA Players Association, soared to popularity as non-fungible tokens became more mainstream in 2021. The NFTs are built on top of Dapper Labs’ Flow Blockchain, and some were sold and resold for hundreds of thousands dollars.
Dapper Labs had motioned for the case to be dismissed in September, saying the plaintiffs could not “make a federal securities case over basketball cards,” according to Reuters. But on Wednesday, U.S. District Judge Victor Marrero said that the plaintiffs had presented a strong enough argument for the case to go forward, according to Bloomberg.
“Today’s order—which the court described as a ‘close call’—only denied the defendants’ motion to dismiss the complaint at the pleading stage of the case. It did not conclude the plaintiffs were right, and it is not a final ruling on the merits of the case,” a spokesperson for Dapper Labs said in a statement to Fortune.
Possibly working against Dapper Labs’ argument is the fact that Top Shot NFTs were limited to the Flow blockchain, and, in the judge’s view, dependent on the company’s “continued existence.”
“Dapper Labs maintains private control over the Flow Blockchain, which significantly, if not entirely, dictates Moments’ use and value,” the judge wrote in his decision, one of the first to tackle the question of whether NFTs are securities, a claim repeatedly levied against cryptocurrencies.
Last week, the SEC told New York-based crypto company Paxos that it planned to sue the company over its stablecoin, Binance USD (BUSD), which the agency alleges is an unregistered security.
As for the case against Dapper Labs, the company said it looks forward to defending its position in court.
“Courts have repeatedly found that consumer goods—including art and collectibles like basketball cards—are not securities under federal law,” the company spokesperson told Fortune. “We are confident the same holds true for Moments and other collectibles, digital or otherwise.”
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