The fallout over non-fungible tokens (“NFTs“) continues to play out in court. Nike is facing a proposed class action lawsuit over NFTs, with the sportswear giant being accused of promoting and selling unregistered securities and orchestrating what the plaintiff characterized as a “rug pull.” In a newly-filed complaint, Jagdeep Cheema alleges that Nike, throughits subsidiary RTFKT, hyped the sale of Nike-themed NFTs – only to fail to register them as securities and then pull support for the project, causing the value of the sneaker-centric NFTs to plummet.
According to the complaint, which was filed with the U.S. District Court for the Eastern District of New York on April 25, Nike leveragedits iconic brandingand marketing strength to build demand for the NFTs, promoting them as part of a gamified ecosystem that promised challenges, rewards, and access to limited-edition physical Nike products. Investors, enticed by these prospects and the ability to resell NFTs on secondary markets, purchased the tokens, with Nike and RTFKT taking a cut of the trading fees. However, in December 2024, RTFKT announced it was “winding down operations,” a move that Cheema says effectively killed the ecosystem that gave the NFTs their value, leaving investors “holding the bag.”
Specifically, Cheema contends that Nike’s marketing created a reasonable expectation of profits derived from Nike’s continued efforts, thereby satisfyingtheHoweyTest criteriafor an investment contract under U.S. securities law. He argues that although the NFTs functioned like securities, they were never registered with the Securities and Exchange Commission, and investors were deprived of disclosures required under federal law.
Rather than asserting claims under federal securities laws, Cheemas use this framework to support his consumer protection and unjust enrichment claims. For example, he alleges that the value of NFTs was entirely dependent on Nike “promotional initiatives.”
For example, Cheema points to Nike“forgings” events, which were special time windows in which owners of certain NFTs were eligible to order exclusive, limited edition, physical Nike shoes. During one such forging event in October of 2023, the price of the relevant NFTs spiked by over 600% month-over-month –allegedly evidencing that the NFTs’ value depended directly on Nike’s ongoing marketing activities rather than any independent artistic or collectible worth.
At the same time, the collapse in value of the NFTs after RTFKT revealed that it would cease operations demonstrated that their market worth was tied not to their intrinsic value, but to “the continuing promotional ecosystem” that Nike had cultivated.Cheema further asserts that investors reasonably expected profits “to be derived from the continuing managerial efforts of Nike,” and that Nike’s sudden withdrawal of support through the closure of RTFKT constituted a deceptive act, leaving purchasers “holding obsolete crypto assets whose value had suddenly evaporated” when the promotional ecosystem collapsed.
Even if the NFTs are ultimately not found to be securities, “the rug pull was [still] a deceptive act,” Cheema contends, arguing that Nike’s decision to wind down RTFKT left NFT holders “holding obsolete crypto assets whose value had suddenly evaporated.” And unlike traditional collectibles, which often increase in value when production ends, he maintains that the NFTs “plummeted in value” once Nike abandoned its ongoing promotional efforts.
With the foregoing in mind, Cheema sets out claims for violations of 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. He also lodges a claim for unjust enrichment, alleging that Nike wrongfully profited from transaction fees and secondary market activity while failing to sustain the ecosystem that investors relied upon.
In addition to certification of the class action, Cheema is seeking monetary damages, rescission of the NFT purchases, injunctive relief to bar Nike from offering unregistered securities, disgorgement of Nike’s profits from the NFT project, and attorneys’ fees.
The case is Cheema v. Nike, Inc., 1:25-cv-02305 (E.D.N.Y.).
