Shaq Settles NFT Lawsuit for $11M, as SEC Scrutinizes NFT Market

Shaquille “Shaq” O’Neal may have been a repeat winner on the basketball court, but, in a federal district court in Florida, his defense wasn’t up to snuff.

Shaquille “Shaq” O’Neal might not have missed a shot on the basketball court, but in a federal district court in Florida, his defense wasn’t up to snuff.

On Monday, plaintiffs against the former basketball star submitted an unopposed proposal to settle a lawsuit against him for $11 million, according to court filings.

The settlement, pending approval from the judge, would put an end to a putative class action lawsuit in which O’Neal was alleged to have issued and promoted unregistered securities.

These alleged securities were an NFT collection from Astrals, or 10,000 images of “metaverse-ready 3D avatars,” and an associated token called Galaxy.

The companies behind Astrals are also part of the settlement agreement, and the $11 million would cover both the plaintiffs’ attorney fees and cash payouts to the purchasers of the NFTs and tokens.

O’Neal is the latest celebrity to face legal woes for his involvement in crypto.

Celebrity socialite Kim Kardashian paid about $1.3 million in penalties to settle charges with the US Securities and Exchange Commission in 2022 after promoting the EthereumMax crypto project.

Similarly, NFL star Tom Brady and comedian Larry David faced legal problems for promoting bankrupt crypto exchange FTX.

O’Neal is also included in litigation against the suite of celebrities who promoted FTX.

Lawyers for the Astrals team and O’Neal did not immediately respond to requests for comment. Plaintiffs’ lawyer Adam Moskowitz also did not immediately respond.

Are NFTs securities?

For attorneys and regulators who believe NFTs can be unregistered securities, the settlement shows they can make their case in a court of law.

Since September 2023, the SEC has slapped three NFT collections — Impact Theory, Stoner Cats, and Flyfish Club — with securities-related charges.

All three NFT projects settled without admitting or denying fault.

And, in August, OpenSea, one of the largest NFT marketplaces, announced that it had received a Wells notice from the SEC, which means the agency has decided preliminarily to bring litigation against an entity.

“OpenSea has received a Wells notice from the SEC threatening to sue us because they believe NFTs on our platform are securities,” co-founder and CEO Devin Finzer wrote on X. “We’re shocked the SEC would make such a sweeping move against creators and artists.”

The crypto faithful echoed Finzer’s apparent surprise.

“This is obviously absurd on its face,” tweeted Kraken co-founder Jesse Powell.

‘Financial strain’

O’Neal and his son are the founders of Astrals, and in March 2022, they launched the collection of the 10,000 3D images, according to the original complaint.

To promote the NFTs and their associated Galaxy cryptocurrency, the basketball legend, under his alter ego “DJ Diesel,” performed shows in front of massive images of Astrals characters, among other promotion tactics.

One year later, in May 2023, plaintiffs brought a lawsuit against O’Neal for his role in Astrals. Over more than a year of litigation, O’Neal and the Astrals team repeatedly moved to dismiss the complaint.

However, in August, the federal judge overseeing the case said that the plaintiffs could proceed with the litigation. They had plausibly argued that the Astrals NFTs and the Galaxy token were unregistered securities, he concluded.

In November, lawyers for both the plaintiffs and defendants signaled that they had reached a settlement.

“The financial strain has become substantial,” the Astrals team announced on its private Discord, according to the proposed settlement. “Legal fees have exceeded our initial expectations, and the case has stretched on longer than anticipated.”

Ben Weiss is DL News’ Dubai Correspondent. Got a tip? Email at bweiss@dlnews.com.