Nike Faces $5 Million Class-Action Lawsuit for Allegedly Misleading Investors on RTFKT NFTs

Nike is facing a class-action lawsuit that claims the company misled investors by promoting non-fungible tokens (NFTs) tied to its RTFKT platform before abruptly shutting it down.

The lawsuit, filed in Brooklyn federal court on 25 April and reported by Law360, accuses Nike of orchestrating a “rug pull” by heavily marketing its sneaker-themed NFTs, encouraging investment, and then closing the platform in January.

This case spotlights the pending classification of NFTs as securities and comes amid a sharp downturn in NFT market value, with total sales plunging 63% year-on-year in the first quarter.

Class-action group alleges Nike sold unregistered NFTs

The class-action group, led by Jagdeep Cheema, alleges that Nike used its brand recognition and marketing strength to promote NFTs functioning as unregistered securities.

According to the lawsuit, Nike encouraged purchases by linking the NFTs’ value to the company’s ongoing promotional efforts, leading investors to expect rising asset values tied directly to the brand’s success.

The complaint argues that investors suffered “significant damages” after Nike shuttered RTFKT, destroying the tokens’ value. It also claims Nike violated consumer protection and state competition laws.

The suit seeks $5 million in damages, citing breaches related to marketing unregistered securities and failing to safeguard investors’ interests after shutting down RFTKT.

Notably, the case highlights the legal uncertainty surrounding NFTs. While a US court has yet to definitively rule on whether NFTs are securities, OpenSea, a major NFT marketplace, argued in an April 9 letter to the Securities and Exchange Commission that NFTs should not fall under securities regulation.

Despite this broader debate, the plaintiffs maintain that the court does not need to settle the securities status of NFTs to rule on Nike’s alleged wrongdoing.

Nike NFT values crash after RTFKT shutdown

Nike acquired RTFKT Studios, a virtual sneaker and collectibles firm, in 2021. Following the acquisition, Nike released the “CryptoKick” NFT collection.

When listed on OpenSea on 18 April 2022, the average price of these NFTs was 3.5 Ether (around $8,000).

However, after Nike shuttered RTFKT in January, the average price of the CryptoKick tokens dropped dramatically. By 21 April, the tokens were trading for around 0.009 Ether, or roughly $16.

The lawsuit claims that this collapse in value directly harmed investors who bought NFTs expecting future participation in RTFKT’s challenges and quests, a key component marketed as a reason to invest in the tokens.

As stated in the complaint: “The closure of the RTFKT platform has deprived members of the class of the opportunity to participate in any Challenges or Quests announced by RTFKT, and to earn any rewards or benefits that would have been provided in connection therewith.”

The plaintiffs assert that the closure removed promised utility features which underpinned the NFTs’ value proposition, leaving investors without access to previously promoted opportunities for rewards and engagement.

This downturn in Nike’s NFT values occurred alongside a broader slump in the NFT market. Data from Messari shows that global NFT sales dropped to $1.5 billion from January to March 2023, marking a 63% fall compared to $4.1 billion in the same quarter of 2022.

This contraction reflects a growing skepticism among investors about the long-term value of NFTs, especially projects closely tied to brand-driven hype.

Nike’s situation adds to a series of controversies testing the assumptions about sustainable digital asset markets. While debates around the regulatory classification of NFTs continue, cases like this one may spur new legal arguments without awaiting formal rulings on securities law status.