Nike Faces $5M Lawsuit Over Alleged NFT Rug Pull

Nike Inc. is facing a class-action lawsuit filed by a group of users led by Jagdeep Cheema, who claim that the sportswear giant misled investors about the security and value of its non-fungible tokens (NFTs) issued through its platform RTFKT. The lawsuit, filed in a Brooklyn federal court, alleges that Nike operated a "rug pull" by shutting down the RTFKT platform in January, causing significant financial losses to investors.

The plaintiffs argue that Nike's NFTs were unregistered securities, as the company sold them without registering with the Securities and Exchange Commission. The lawsuit claims that Nike used its iconic brand and marketing prowess to promote the unregistered securities, leading investors to purchase the digital assets with the hope that their value would increase based on the success of the Nike brand.

The lawsuit seeks $5 million in damages, claiming that Nike violated consumer protection laws and various state unfair trade and competition laws. The plaintiffs argue that the court does not necessarily need to rule on the legal status of NFTs to address the complaint, as the primary issue is the alleged misrepresentation and deceptive practices by Nike.

Nike acquired the NFT firm RTFKT Studios in 2021, which created virtual sneakers. Holders of the resulting Nike NFTs were told that the tokens could be traded peer-to-peer on the secondary market and used to complete challenges and quests that could lead to rewards. However, the abrupt shutdown of RTFKT in January decimated investors when prices plunged and did not recover, and also took away the chance to participate in the challenges and quests.

The lawsuit highlights the ongoing debate surrounding the legal classification of NFTs and the responsibilities of companies that issue them. While the overall NFT market has seen a sharp decline in recent months, this case adds to the growing list of legal challenges facing the digital asset industry. Nike has not yet responded to requests for comment on the lawsuit.