A US District Court judge has rejected Dapper Labs’ request to dismiss a lawsuit that alleges NBA Top Shots, the popular non-fungible token (NFT) collection, is an unregistered security.

In his ruling, Judge Victor Marrero suggested that NBA Top Shots meets the requirements of a security under the Howie Test, a legal standard used to determine if an asset can be classified as a security.

The NBA Top Shots collection, which allows users to collect NFTs in the form of video highlights from the National Basketball Association, was one of the most successful NFT collections of 2021.

However, a plaintiff sued Dapper Labs in May 2021, claiming that the Top Shots collection violated securities law by failing to register with the Securities and Exchange Commission (SEC).

Judge Marrero noted that while physical sports trading cards from companies such as Topps and Upper Deck have value that is unaffected by the success of their parent company, the value of NBA Top Shots is inextricably linked to the success of the Flow Blockchain and Dapper Labs.

The judge also emphasized that the decision should not be applied broadly to all NFTs and each should be evaluated on a case-by-case basis.

The ruling comes amid growing scrutiny of the cryptocurrency and NFT industries by regulators. In February, the SEC imposed a $30 million fine on US crypto exchange Kraken for offering staking products that the agency considers to be securities.

As the NFT market continues to grow and evolve, it is expected that regulators will take a closer look at the industry and how it operates.