A proposal for a class action lawsuit is accusing Nike of engaging in a “rug pull” by shutting down operations for its RTFKT NFT platform.
The suit was filed Friday in a Brooklyn federal court with Australian resident Jadeep Cheema leading the group of aggrieved customers for Nike’s digital sneakers. It argues that the value of the RTFKT tokens was based entirely on Nike’s promotional efforts. Once the company pulled that support, investors were left “holding the bag.”
Nike acquired RTFKT in 2021, a year after the sneaker NFT studio was founded, and began releasing Swoosh-branded digital collectables. Nike would profit in its initial sale of tokens and would also get its cut any time one of its NFTs were bought or sold on the secondary market.
Some of the NFTs could be redeemed for real-life sneakers, including limited-edition Air Force 1s. These “forging” events were particularly important for driving the value of the tokens, with one such occasion October 23 leading to a 600 percent rise in prices.
Amid a wider landscape of suits seeking to determine the legal status of NFTs, Cheema is joining the side arguing they should be considered as securities. “Plaintiff and others would never have purchased the Nike NFTs at the prices they did, or at all, had they known that the Nike NFTs were unregistered securities or that Nike would cause the rug to be pulled out from under them,” the filing said.
Cheema is seeking damages of at least $5 million, as well as the disgorgement of RTFKT profits and injunctive relief to prevent Nike from offering additional unregistered securities.
Footwear News has reached out to Nike for comment and will update if a response is given.
Cheema applies the Howey Test to the RTFKT project and says Nike created a reasonable expectation of profits with the company’s continued backing. But even if the court doesn’t find that the NFTs qualify as unlicensed securities, he contends Nike nonetheless engaged in a deceptive act by no longer propping up the ecosystem upon which the value of the NFTs were based.
After Nike announced the closure of RTFKT, “holders of the Nike NFTs felt that the decision left them holding obsolete crypto assets,” the filing said before drawing a distinction between such tokens and more traditional artwork.
“When an artist dies or otherwise stops producing art, the artist’s work typically goes up in value. Collectors do not accuse the artist of pulling the rug out from under them.”