Non-fungible token (NFT) fraud has cost investors hundreds of millions of dollars through rug pulls, wash trading, counterfeit digital assets, and projects that sold what regulators determined were unregistered securities. If you lost money in an NFT project that abandoned its roadmap, artificially inflated prices, or misrepresented the nature of the investment, you may have actionable legal claims under federal and California law. Varnavides Law represents investors who suffered significant NFT-related losses and are seeking to hold responsible parties accountable. Our practice covers a broad range of investment fraud matters, including cryptocurrency and digital asset cases.
This page explains the legal framework that governs NFT fraud claims, the types of conduct that give rise to liability, how courts and the Securities and Exchange Commission (SEC) have treated NFTs under securities law, and what victims can do to preserve their rights. If you lost $100,000 or more to NFT fraud, contact us for a free consultation.
Key Takeaways
- NFT fraud types: Rug pulls, wash trading, counterfeit NFTs, undisclosed influencer promotions, smart contract exploits, and fake marketplaces each carry distinct legal theories.
- Securities law may apply: The SEC has charged NFT projects as unregistered securities offerings under the Howey test. Impact Theory LLC settled for $6.1 million (2023); Stoner Cats 2 LLC for $1 million (2023).
- Four Howey prongs, not one: An NFT qualifies as a security only when all four Howey prongs are satisfied — investment of money, common enterprise, expectation of profits, and profits derived predominantly from the efforts of others.
- Financial Industry Regulatory Authority (FINRA) arbitration generally does not apply: Most NFT platforms are not FINRA-registered broker-dealers. Claims typically proceed in federal or state court, not FINRA arbitration.
- Statute of limitations is strict: 28 U.S.C. § 1658(b) requires filing within two years of discovery or five years of the violation — whichever is earlier. Both are hard outer limits. Act promptly.
Types of NFT Fraud That Give Rise to Legal Claims
Not every NFT loss is recoverable. The law distinguishes between investment risk — which investors assume — and fraud, which imposes legal liability. The following categories of conduct are the most legally significant.
Rug Pulls
A rug pull occurs when project developers attract investment by promoting a roadmap, then abandon the project after collecting funds — effectively disappearing with investor money. Rug pulls can be “hard” (the developers drain liquidity entirely in a single transaction) or “soft” (the team gradually distances itself while selling its holdings). Legal claims include common law fraud (intentional misrepresentation), breach of contract (smart contract terms), and potentially securities fraud if the NFTs were structured as investment contracts. Where the same individuals operated multiple fraudulent NFT projects, civil RICO under 18 U.S.C. § 1962 may provide additional remedies — but requires a pattern of racketeering activity (continuity plus relationship across predicate acts, per H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1989)), and the PSLRA (15 U.S.C. § 78u-4) prohibits RICO claims where the predicate acts consist solely of securities-fraud conduct (18 U.S.C. § 1964(c)).
Wash Trading
Wash trading involves coordinated buying and selling between related parties to create a false appearance of demand and price appreciation. Investors who purchased based on artificially inflated trading volume suffer losses when actual market demand materializes at far lower price points. § 10(b) (15 U.S.C. § 78j(b)) of the Exchange Act and Rule 10b-5(a) and (c) thereunder (17 C.F.R. § 240.10b-5) prohibit manipulative schemes and deceptive devices in connection with securities transactions — including wash-trading schemes that artificially inflate NFT prices, where the NFT is a security, regardless of whether it trades on a registered national securities exchange. California Business & Professions Code§ 17200 — California’s UCL — makes it unlawful to engage in any unlawful, unfair, or fraudulent business act or practice. (Bus. & Prof. Code§ 17200 — UCL — prohibits unlawful, unfair, or fraudulent business acts) Wash trading that creates a false appearance of NFT market demand independently qualifies as an unfair or fraudulent business practice under § 17200, providing a separate statutory basis for recovery regardless of whether the NFT is a security.
Counterfeit NFTs
Counterfeit NFTs are unauthorized copies or knock-offs of legitimate NFT collections — sold on major marketplaces by bad actors impersonating original creators. Buyers pay for what they believe is a genuine item from an established project and receive either a worthless duplicate or nothing at all. Claims include fraud, misrepresentation, and unjust enrichment.
Undisclosed Influencer Promotions
When celebrities or social media influencers promote NFT projects without disclosing that they received compensation, those promotions may violate the FTC’s Endorsement Guides (16 C.F.R. Part 255) and, where the NFT is a security, Exchange Act § 10(b) (15 U.S.C. § 78j(b)) prohibits material misrepresentations made in connection with such promotions. The FTC Act § 5 authorizes civil penalties for unfair or deceptive acts. In Harper v. O’Neal, No. 23-cv-21867 (S.D. Fla. Aug. 16, 2024), a federal court denied a motion to dismiss claims that Shaquille O’Neal acted as a statutory “seller” of Astrals and Galaxy NFTs under securities law — allowing the theory to proceed to discovery. (Varnavides Law represents individual investors in this context — not groups of claimants in representative litigation.) Under Pinter v. Dahl, 486 U.S. 622 (1988), § 12(a)(1) (15 U.S.C. § 77l(a)(1)) seller liability requires active solicitation of the purchase, motivated at least in part by a financial interest in the transaction — passive brand participation alone does not qualify.
Smart Contract Exploits
Some NFT projects contain intentional vulnerabilities in their smart contracts — back doors allowing developers to mint unlimited tokens, drain reserves, or modify ownership records after sale. Where the exploit was designed into the contract at inception (rather than discovered by third-party hackers), the conduct is fraud. Claims include breach of implied warranty of fitness, intentional misrepresentation, and conspiracy.
Fake Marketplaces and Phishing
Fraudulent websites mimic legitimate NFT marketplaces (OpenSea, Magic Eden) to trick users into connecting wallets or completing “transactions” that steal digital assets. These schemes involve wire fraud under 18 U.S.C. § 1343, computer fraud under the Computer Fraud and Abuse Act (18 U.S.C. § 1030), and civil claims including conversion and fraud.
Are NFTs Securities? Applying the Howey Test
The central legal question in most NFT fraud cases is whether the NFT qualifies as a “security” under federal law. If it does, Securities Act § 12(a)(1) (15 U.S.C. § 77l(a)(1)) provides a rescission remedy for unregistered offerings and Exchange Act § 10(b) (15 U.S.C. § 78j(b)) prohibits fraud in connection with the purchase or sale of securities — the Securities Exchange Act of 1934’s core anti-fraud prohibition. If the NFT is not a security, claims proceed under common law fraud, contract, or state consumer-protection theories. An experienced securities fraud attorney can evaluate which theories apply to your specific facts.
Courts and the SEC apply the four-prong test from SEC v. W.J. Howey Co., 328 U.S. 293 (1946). An NFT is a security (specifically, an investment contract) when all four of the following elements are present:
The Four Howey Prongs Applied to NFTs
- Investment of money: The purchaser paid something of value — including cryptocurrency — to acquire the NFT.
- Common enterprise: The investor’s fortunes are linked to those of the promoter or other investors, typically through a shared liquidity pool, royalty structure, or project treasury that determines NFT value.
- Expectation of profits: The NFT was marketed — explicitly or implicitly — as something that would increase in value. Marketing materials emphasizing investment returns, resale value, or royalty income are strong indicators.
- Profits from the efforts of others: The expected profits depend predominantly on the managerial or entrepreneurial efforts of the NFT project team, not on the investor’s own independent actions.
All four prongs must be satisfied. An NFT sold purely as digital art with no investment promises and no shared enterprise does not qualify as a security under Howey, even if the buyer later sells it at a profit.
The SEC has not declared that all NFTs are securities. Its enforcement actions have targeted specific projects where the marketing and structure satisfied all four Howey prongs.
SEC Enforcement Actions Establishing Precedent
Two 2023 SEC settlements have become the leading precedent for NFT-as-security analysis:
Impact Theory LLC (August 28, 2023). Impact Theory, a California-based media company, sold three tiers of “Founder’s Keys” NFTs and explicitly marketed them as investments in the company — encouraging buyers to view their purchase as “an investment in us and in our ability to execute.” The SEC found that all four Howey prongs were met: investors paid cryptocurrency (prong 1) into a pooled enterprise (prong 2) expecting profit (prong 3) from Impact Theory’s business-building efforts (prong 4). Impact Theory settled for $6.1 million, including disgorgement and civil penalties, without admitting or denying the findings.
Stoner Cats 2 LLC (September 13, 2023). Stoner Cats sold 10,320 NFTs on July 27, 2021 to fund an animated web series, generating approximately $8.2 million in gross proceeds. The project offered a 2.5% royalty on secondary sales and marketed NFT ownership as participation in the project’s financial success. The SEC charged an unregistered offering of crypto asset securities and Stoner Cats settled for $1 million.
These cases establish that the SEC will treat NFT projects as securities offerings when: (1) the issuer actively promotes profit expectations tied to its own efforts; (2) the structure includes revenue-sharing or royalty mechanisms on secondary sales; and (3) the issuer controls the ecosystem that determines NFT value. As of 2026, these enforcement actions remain the leading precedents for NFT-as-security analysis in federal courts.
Key Federal Statutes That Apply to NFT Fraud
Depending on whether the NFT qualifies as a security and the nature of the fraud, different federal statutes govern claims.
| Statute | What It Covers | Application to NFTs |
|---|---|---|
| Exchange Act § 10(b) / Rule 10b-5 (17 C.F.R. § 240.10b-5) | Prohibition on fraud and material misrepresentation “in connection with the purchase or sale” of a security — requires proof of scienter (fraudulent intent) | Applies when the NFT is a security and the developer made materially false statements — e.g., false roadmap promises, fabricated partnership announcements, or undisclosed sell-offs by insiders |
| Securities Act § 12(a)(1) (15 U.S.C. § 77l(a)(1)) | Rescission remedy for purchasing an unregistered security — requires return of the security in exchange for the purchase price | Buyer may recover the purchase price (or damages) when NFTs were sold as unregistered securities — the Impact Theory and Stoner Cats theories |
| 28 U.S.C. § 1658(b) | Statute of limitations for private § 10(b) / Rule 10b-5 claims — requires filing within two years of discovery or five years of the violation | Two years from discovery of facts constituting the violation, or five years from the violation — whichever is earlier. Both deadlines are hard; the earlier one controls. |
| FTC Act § 5 (15 U.S.C. § 45) | Prohibition on unfair or deceptive acts in commerce; FTC enforcement authority | Undisclosed influencer promotions of NFTs — including paid endorsements that are presented as organic enthusiasm — can constitute deceptive acts; FTC may assess civil penalties |
| Wire Fraud (18 U.S.C. § 1343) | Criminal prohibition on wire fraud; underpins civil RICO claims | NFT rug pulls executed via internet communications satisfy wire fraud elements; civil RICO claims (18 U.S.C. § 1962) may be available when a pattern of wire fraud — continuity plus relationship (H.J. Inc., 492 U.S. 229) — involves multiple projects or victims, and when the RICO predicates are not composed solely of securities-fraud conduct — the PSLRA (15 U.S.C. § 78u-4) prohibits securities-fraud-only RICO theories (18 U.S.C. § 1964(c)) |
California Law Remedies for NFT Fraud
California provides several independent statutory and common law remedies that can be pursued alongside — or instead of — federal securities claims.
California Corporations Code § 25401 — Prohibits Fraudulent Securities Sales
California Corporations Code § 25401 prohibits selling securities by means of untrue statements or misleading omissions — California’s Corporate Securities Law of 1968’s core anti-fraud prohibition. Under § 25401, it is unlawful to sell a security by means of any written or oral communication that includes an untrue statement of material fact or omits a fact necessary to make a statement not misleading. § 25501 provides a private right of action: the buyer may sue to rescind the purchase or recover damages. The limitations period under § 25506(b) is the earlier of five years from the violation or two years from the date of discovery.
California Business & Professions Code§ 17200 — UCL
(Bus. & Prof. Code§ 17200 — UCL — prohibits unlawful, unfair, or fraudulent business acts)
California’s UCL (Bus. & Prof. Code§ 17200) prohibits any unlawful, unfair, or fraudulent business act or practice. NFT rug pulls, wash trading, and fake marketplace schemes independently qualify as fraudulent business practices under § 17200. Importantly, the UCL’s “unlawful” prong borrows the violation of any other law as an independent basis for a UCL claim — so a violation of the FTC’s Endorsement Guides or federal securities law also supports a UCL claim. Remedies include restitution and injunctive relief.
Common Law Fraud (California)
California common law fraud requires: (1) a false representation of a material fact; (2) knowledge of its falsity; (3) intent to induce reliance; (4) justifiable reliance by the plaintiff; and (5) resulting damages. The statute of limitations requires filing within three years of discovery of the fraud (Cal. Civ. Proc. § 338(d) — the fraud discovery-rule provision). This claim does not require the NFT to be a security.
Breach of Contract / Smart Contract
NFT project terms of service and whitepaper commitments create contractual obligations. When developers promise specific utility, royalty payments, or deliverables and then abandon the project without performance, they breach those contracts. Smart contract code itself may constitute a contract term. California’s four-year statute of limitations for written contracts applies to whitepaper and smart contract obligations.
What About FINRA Arbitration?
FINRA Arbitration Generally Does Not Apply to NFT Fraud
FINRA arbitration is available when a securities dispute arises from a transaction conducted through a FINRA-registered broker-dealer. The vast majority of NFT platforms — including OpenSea, Magic Eden, Rarible, and similar marketplaces — are not registered broker-dealers and are not FINRA members. Investors who purchased NFTs directly through these platforms do not have access to FINRA’s arbitration forum.
If, in an unusual circumstance, an NFT was sold to you by a FINRA-registered broker-dealer as part of its business, FINRA arbitration may apply under FINRA Rule 12200 (Customer Code). That scenario is rare in the current NFT market. If you are unsure whether your transaction involved a registered broker-dealer, contact us to evaluate the facts of your case.
Statute of Limitations: Don’t Wait
NFT fraud claims are time-barred if not filed within the applicable limitations period. The periods vary by claim type and are strictly enforced.
| Claim | Limitations Period | How the Clock Starts |
|---|---|---|
| Federal § 10(b) / Rule 10b-5 — statute of limitations (28 U.S.C. § 1658(b)) requires filing within 2 or 5 years | Earlier of: 2 years from discovery or 5 years from violation | Discovery: when plaintiff knew or should have known facts constituting violation. Both deadlines are hard — whichever expires first controls. |
| California Corp. Code § 25401 / § 25501 (§ 25506(b)) | Earlier of: 5 years from violation or 2 years from discovery | Same “earlier of” structure as federal law — both outer limits are firm. |
| California Common Law Fraud — 3-year statute of limitations (Cal. Civ. Proc. § 338(d) — discovery-rule provision) | 3 years from discovery | When plaintiff discovered or should have discovered the facts constituting fraud through reasonable diligence. |
| California Breach of Contract (4-year written-contract limitations rule) | 4 years (written contract) | Date of breach (when the promised performance was due and not delivered). California’s four-year statute of limitations for written contracts applies to NFT whitepaper and smart contract commitments. |
| California UCL § 17200 | 4 years | Date the unfair or fraudulent business act occurred. |
The “earlier of” structure in federal securities law and California corporate securities law is critically important and often misunderstood. Even if you discovered the fraud recently, the five-year outer limit from the date of the violation may already have run. Do not assume you have time simply because you learned of the fraud late. Consult an attorney immediately.
Legal Claims Available to NFT Fraud Victims
Depending on the facts of your case, one or more of the following causes of action may be available. Most strong cases involve multiple overlapping theories.
Federal Securities Claims
If the NFT is a security, Exchange Act § 10(b) (15 U.S.C. § 78j(b)) prohibits material misrepresentations in connection with its purchase or sale. Securities Act § 12(a)(1) (15 U.S.C. § 77l(a)(1)) provides a rescission remedy for unregistered offerings. Rule 10b-5 requires proof of scienter; § 12(a)(1) does not.
Fraud and Contract Claims
Common law fraud: intentional misrepresentation of material facts — available regardless of security status. Breach of contract: failure to deliver promised utility, roadmap milestones, or royalty payments. When multiple fraudulent projects by the same actors form a pattern of wire fraud (continuity plus relationship, per H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1989)), civil RICO under 18 U.S.C. § 1962 may support treble damages — provided the predicate acts are not composed solely of securities-fraud conduct — the PSLRA (15 U.S.C. § 78u-4) prohibits securities-fraud-only RICO theories (18 U.S.C. § 1964(c)).
California State Claims
California Corp. Code § 25401 — state securities fraud with a private rescission and damages remedy under § 25501. California Bus. & Prof. Code § 17200 (UCL) prohibits unlawful, unfair, or fraudulent business acts covering wash trading, rug pulls, and fake marketplace schemes even when federal securities law does not apply.
Evidence That Supports NFT Fraud Claims
Blockchain records are permanently immutable — they provide stronger documentary evidence than most financial fraud cases. However, off-chain evidence (social media, Discord, promotional materials) disappears quickly when scammers exit. Preserve evidence immediately.
On-Chain Evidence
- Transaction hashes and timestamps for all purchases
- Wallet addresses for developer wallets and liquidity pools
- Smart contract code — particularly admin functions that allow minting or draining
- Token transfer records showing insider sell-offs before project collapse
- Wash trading patterns — the same wallets repeatedly buying from each other
- Liquidity pool withdrawal transactions showing drain date and amount
Off-Chain Evidence (Preserve Immediately)
- Website content and whitepaper (archive via Wayback Machine before it disappears)
- Social media posts and promotional tweets (screenshot before deletion)
- Discord messages and server screenshots
- Celebrity endorsement posts and any disclosed or undisclosed compensation
- Email communications from project team
- Roadmap documents and promised milestones
Evidence Disappears Within Hours of a Rug Pull
NFT scammers routinely delete Twitter accounts, close Discord servers, and take down websites within hours of executing a rug pull. If you suspect fraud, archive all project-related content immediately — before it disappears. Once deleted, recovery is difficult even with court orders and subpoenas.
What Varnavides Law Brings to NFT Fraud Cases
NFT fraud litigation requires simultaneous command of blockchain technology, federal securities law, California corporate securities law, and complex fraud litigation procedure. Gary Varnavides brings a perspective few NFT fraud attorneys have: over a decade representing the defense side of securities disputes, he learned exactly how financial fraud is structured, what evidence is most persuasive to arbitrators and courts, and how defense counsel attacks investor claims. That experience now works for investors.
About Gary Varnavides
Gary Varnavides is the founder and principal attorney of Varnavides Law, PC, based in Century City, Los Angeles. He spent more than ten years at Sichenzia Ross Ference LLP defending broker-dealers and investment firms before switching sides to represent investors. He is licensed in California and New York and is federally admitted in the Central District of California, Southern District of New York, and Eastern District of New York. He earned his J.D. from Fordham University School of Law in 2010 (Editor-in-Chief, Fordham Journal of Corporate & Financial Law) and has been recognized as a New York Super Lawyers Rising Star (2015–2023), placing in the top 2.5% of attorneys in the New York Metro area. His article “The Flawed State of Broker-Dealer Regulation” received the IMCA Richard J. Davis Legal/Regulatory/Ethics Award.
Varnavides Law offers a free consultation. Fee arrangements vary by matter and are discussed during consultation. You remain responsible for out-of-pocket case costs, which vary by case and are discussed during your free initial consultation. We do not take NFT fraud cases involving losses below $100,000 because below that threshold, the economics of litigation rarely serve the client’s interests.
How to Take Action After NFT Fraud
- Stop further transactions: Do not send additional funds to the project or interact with developers claiming to offer refunds — these are almost always secondary scams.
- Preserve evidence immediately: Screenshot social media accounts, archive websites using the Wayback Machine, and export all blockchain transaction records from your wallet.
- Report to federal authorities: File a complaint with the FBI’s Internet Crime Complaint Center (IC3) and consider reporting to the SEC’s tip and complaint system.
- Do not wait to consult an attorney: Statutes of limitations begin running from either the date of the violation or the date of discovery — whichever imposes the shorter deadline. Delay costs legal rights.
Free Consultation for NFT Fraud Victims
If you lost $100,000 or more to an NFT rug pull, wash trading scheme, counterfeit NFT sale, or other NFT fraud, contact Varnavides Law, PC for a free case evaluation. We represent investors in California and New York and, in federal court matters where jurisdiction is appropriate, nationwide.
Time limits apply to your claims. Schedule a consultation before your deadline expires.
Frequently Asked Questions About NFT Fraud Claims
Can I sue for losses from an NFT rug pull?
Yes, if you can identify the developers and establish that the abandonment resulted from intentional fraud rather than legitimate business failure. Rug pulls typically support claims for common law fraud, breach of contract (failure to deliver promised utility and roadmap milestones), and potentially securities fraud if the NFTs were marketed with profit expectations dependent on developer efforts. The key legal distinction is between fraud — which involves intentional deception — and business failure, which does not give rise to fraud liability even if investors lose money.
Identifying anonymous developers is a significant challenge. Blockchain forensic analysis can sometimes trace developer wallet addresses to cryptocurrency exchanges where KYC identity verification occurred. Subpoenas to those exchanges may reveal real-world identities. If developers cannot be identified, liability may extend to other parties who actively promoted the project — including influencers who received undisclosed compensation.
Do NFT fraud claims go to FINRA arbitration?
Generally, no. FINRA arbitration is available only when the transaction occurred through a FINRA-registered broker-dealer. The overwhelming majority of NFT transactions take place directly on NFT marketplaces — OpenSea, Magic Eden, Rarible, and similar platforms — which are not registered broker-dealers and are not FINRA members. Those transactions fall outside FINRA’s jurisdiction entirely.
NFT fraud claims based on rug pulls, wash trading, counterfeit NFTs, and unregistered securities offerings proceed in federal or California state court, not FINRA arbitration. If you purchased an NFT through a traditional registered brokerage account — a highly unusual circumstance — FINRA arbitration may apply. We can evaluate whether your specific transaction involved a registered intermediary.
How long do I have to file an NFT fraud lawsuit?
The limitations period depends on the claims asserted. Under 28 U.S.C. § 1658(b), private claims under Exchange Act § 10(b)/Rule 10b-5 must be filed within two years of discovery of the fraud or within five years of the violation — the statute of limitations requires whichever deadline comes first. Both deadlines are firm outer limits; satisfying one does not extend the other.
Under California Corporations Code § 25506(b), state securities fraud claims must be filed within five years of the violation or two years of discovery — again, the earlier deadline controls. California common law fraud carries a three-year discovery-based limitations period (Cal. Civ. Proc. § 338(d)). Do not assume you have time simply because you recently learned of the fraud — the outer five-year period from the date of the violation may already have run.
Does the Howey test apply to every NFT?
The Howey test applies to determine whether an NFT is a security subject to federal securities law. An NFT is an investment contract — and therefore a security — only when all four prongs of SEC v. W.J. Howey Co., 328 U.S. 293 (1946) are met: (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) profits derived predominantly from the efforts of others. All four prongs must be satisfied.
A purely artistic NFT — digital artwork sold without any promise of investment return, profit-sharing, or developer-driven value appreciation — does not qualify as a security under Howey even if the buyer later resells it at a gain. The SEC’s 2023 enforcement actions against Impact Theory and Stoner Cats involved specific marketing language emphasizing profit expectations tied to developer efforts. Courts will look at the totality of the marketing and structure, not the label applied to the token.
What if the NFT developers are in another country?
International defendants complicate but do not eliminate recovery. U.S. courts have jurisdiction over fraud claims when the NFT was marketed or sold to U.S. investors, regardless of where the developers are located. Exchange Act § 10(b) prohibits fraud in connection with domestic transactions in securities, as confirmed by Morrison v. National Australia Bank Ltd., 561 U.S. 247, 266–68 (2010), which established that § 10(b) applies to (1) securities listed on domestic exchanges, and (2) domestic transactions — where the purchaser incurred irrevocable liability within the United States. NFT purchases made by U.S. buyers who sent payment from U.S. accounts typically satisfy the second prong.
Enforcement against overseas defendants is more difficult. However, blockchain analysis can identify developer wallet addresses, and if those developers ever converted their proceeds at a U.S.-regulated exchange or held assets in U.S.-accessible accounts, recovery becomes possible. Criminal referrals to the FBI and DOJ can also accelerate asset tracing through international cooperation channels.
Can I recover from celebrity influencers who promoted a fraudulent NFT project?
Potentially yes, depending on the nature of their involvement. In Harper v. O’Neal, No. 23-cv-21867 (S.D. Fla. Aug. 16, 2024), a federal court denied a motion to dismiss claims that the celebrity was a “seller” of the NFTs under securities law — which, if proven, would expose him to liability under Securities Act § 12(a)(1) (15 U.S.C. § 77l(a)(1)), which provides a rescission remedy against any “seller” of an unregistered security. Celebrities who actively participated in promoting what qualifies as an unregistered securities offering, and received compensation for doing so, may be deemed statutory sellers or underwriters. Under Pinter v. Dahl, 486 U.S. 622 (1988), § 12(a)(1) “seller” status requires active solicitation of the purchase motivated at least in part by a financial interest — mere appearance in promotional materials, without active solicitation or compensation tied to sales, may not satisfy this standard.
Influencers who received undisclosed compensation for promoting NFT projects also face liability under the FTC Act § 5 for deceptive endorsements, though FTC Act enforcement actions are brought by the FTC, not private plaintiffs. California UCL claims may provide an independent private cause of action for deceptive promotional conduct.
What damages can I recover in an NFT fraud lawsuit?
In a federal Rule 10b-5 claim, the standard measure of damages is the “out-of-pocket” measure: the difference between the price paid and the actual value of the NFT at the time of purchase, plus interest. Consequential damages (profits you would have earned but for the fraud) are generally not recoverable in securities fraud actions. In a claim under Securities Act § 12(a)(1) (15 U.S.C. § 77l(a)(1)) for rescission, you recover the purchase price in exchange for returning the security.
California common law fraud allows recovery of all actual damages caused by the misrepresentation, including consequential losses in appropriate cases. Punitive damages are available in California when the defendant acted with fraud, oppression, or malice as defined in Cal. Civ. Code § 3294 — requiring clear and convincing evidence that the defendant was guilty of oppression, fraud, or malice. Civil RICO, if available, provides treble damages and mandatory attorney fees under 18 U.S.C. § 1964(c).
Does Varnavides Law take cases on contingency?
Fee arrangements depend on the facts, claims, and scope of representation. During your consultation, the firm can discuss whether contingency, flat-fee, hourly, or another arrangement may be available for your matter.
You remain responsible for out-of-pocket case costs, which vary by case and are discussed during your free initial consultation. The firm represents clients in cases with $100,000 or more in losses that appear economically viable to pursue. We evaluate collectability (whether any recovery is actually obtainable from the defendants) before agreeing to represent a client.