Nike Faces $5 Million Lawsuit Over Abrupt NFT Shutdown

Nike, the world's largest sportswear brand, is facing a $5 million proposed class action lawsuit filed on Friday. The lawsuit accuses Nike of abandoning NFT investors by abruptly shutting down its RTFKT subsidiary and leaving its sneaker-themed digital assets devalued and illiquid. The plaintiffs allege that Nike used its iconic brand to hype digital collectibles tied to RTFKT, only to execute a "soft rug pull" once profits were made.

The complaint, filed in the Eastern District of New York, claims that Nike promoted unregistered securities in violation of U.S. law. The plaintiffs argue that Nike enticed buyers with its marketing prowess to hype, promote, and prop up sneaker-themed NFTs, only to withdraw support once profits were made. The lawsuit comes as regulators reconsider how NFTs should be treated under U.S. securities laws.

Plaintiffs, led by Jagdeep Cheema, claim they would never have purchased the Nike NFTs at the prices they did, or at all, had they known the tokens were unregistered securities or that Nike would abandon the project. The complaint alleges that Nike deprived investors of material disclosures that registration would have required. The lawsuit also alleges that Nike’s "deceptive acts"—building an ecosystem of rewards to boost NFT demand and then pulling support—violated consumer protection laws in New York, California, Florida, and Oregon.

In December 2024, RTFKT announced via social media that it was “winding down” operations, causing secondary market prices for Nike NFTs to plummet. The lawsuit claims that even if the NFTs are not considered securities, Nike’s actions violated consumer protection laws. The plaintiffs also claim “unjust enrichment,” noting how Nike profited from primary and secondary NFT sales while leaving retail investors to bear the losses.

Nike entered the NFT space in 2021 with the acquisition of RTFKT, a digital fashion and technology company. At its peak, RTFKT's NFTs generated significant sales, driven by Nike's marketing prowess and the growing excitement around digital ownership. However, the momentum quickly faded, and Nike announced the winddown of RTFKT on December 2, 2024. The company stated that the spirit of innovation would continue through creators and projects inspired by the brand, but this did little to assuage the concerns of investors who felt blindsided by the closure.

The lawsuit raises broader questions about how brands should approach Web3 ventures as regulatory scrutiny over digital assets continues to intensify. Investors argue that Nike's failure to disclose the risks associated with NFTs and the potential for the project to be abandoned without warning constitutes a breach of consumer protection laws. The case highlights the need for greater transparency and regulatory clarity in the rapidly evolving world of digital assets and blockchain technology.

Nike has not yet responded to the lawsuit. The outcome of this legal battle could have significant implications for the future of NFTs and other digital assets, as well as for the companies that issue them. As the case progresses, it will be closely watched by industry observers and investors alike, who are eager to see how the courts will address the complex legal and regulatory issues at play.