Nike Faces $5 Million Lawsuit Over RTFKT NFTs: Buyers Allege “Rug Pull” and Securities Law Violations

NEW YORK, April 25, 2025 — In a development that echoes growing tensions around corporate adoption of blockchain technologies, Nike (NKE.N) now faces a proposed class action lawsuit from purchasers of its NFT products. The plaintiffs claim that the abrupt shutdown of Nike’s RTFKT (pronounced “artifact”) unit left them with worthless digital assets — a scenario they describe as a “rug pull.”

The lawsuit, filed Friday in Brooklyn federal court, reflects the murky legal environment surrounding NFTs and reignites debates about consumer protection, securities law, and corporate responsibility in the Web3 era.

What Happened: The Fall of Nike’s RTFKT Unit

Nike acquired RTFKT in December 2021, at the height of NFT and crypto market exuberance. The startup had gained a cult following for its digital sneakers, collectibles, and collaborations blending gaming culture, fashion, and blockchain technology.

Nike’s entrance into the NFT space was celebrated as a major validation of the market’s potential. The company positioned RTFKT as a symbol of “next-generation collectibles,” combining sneaker culture with metaverse innovation.

However, by December 2, 2024, Nike announced the winddown of RTFKT, stating the brand’s legacy would “live on through the countless creators and projects it inspired.”
For NFT holders — many of whom had spent thousands of dollars on digital sneakers, wearables, and exclusive access tokens — this announcement effectively rendered their purchases obsolete.

Demand collapsed almost immediately, driving secondary market values of Nike-RTFKT NFTs sharply downward.

The Lawsuit: Key Allegations

The lead plaintiff, Australian citizen Jagdeep Cheema, along with other NFT holders, accuses Nike of:

• Selling unregistered securities: Alleging that the NFTs were investment contracts requiring registration under U.S. securities law.

• Consumer protection violations: Asserting breaches of laws in New York, California, Florida, and Oregon.

• Fraudulent inducement: Claiming that purchasers were misled into believing the NFTs would maintain utility, value, or support.

• “Rug pull” conduct: Alleging that Nike effectively “pulled the rug” by shutting down the very ecosystem that sustained value.

The plaintiffs seek unspecified damages exceeding $5 million, marking one of the largest NFT-related lawsuits filed against a major global corporation.

Nike has not yet publicly commented on the litigation. Legal representatives for the plaintiffs also declined media requests.

The Legal Status of NFTs: Still Unsettled

One of the core issues this case highlights is the uncertain regulatory status of NFTs:

• Are NFTs securities?
  If NFTs represent an expectation of profit derived from the efforts of others (under the “Howey Test” for securities), they could fall under securities regulations.

• Are NFTs just collectibles or products?
  Many NFT projects argue they are digital artworks or memorabilia — not financial investments — and should be treated as products, not securities.

So far, U.S. courts and regulators like the SEC have not definitively ruled on NFTs as a category. Some isolated cases (e.g., lawsuits involving NBA Top Shot “Moments”) suggest that context matters — the way NFTs are marketed and sold could determine their legal status.

Nike’s case may, therefore, become a pivotal test for how courts treat major brand-backed NFT drops.

Broader Implications for Companies and NFTs

The Nike lawsuit sends an important warning to corporations venturing into Web3:

1. Sustainability of Digital Products

Brands promoting NFTs must think long-term. Abruptly abandoning digital ecosystems risks not only financial losses for users but major brand damage and legal liability.

2. Disclosure Obligations

Companies need to provide clear disclosures regarding:

• What rights buyers actually obtain

• Whether continued support is guaranteed

• Risks associated with NFTs (such as platform shutdowns or market volatility)

Vague or misleading marketing could expose brands to consumer lawsuits and regulatory action.

3. Regulatory Compliance

Until NFTs’ legal status is clarified, conservative brands must assume the possibility that some tokens could be treated as securities — requiring registration, disclosures, and compliance with investor protection laws.

Failing to register or comply could open companies to SEC actions or class-action lawsuits.

4. Impact on the Web3 Market

If courts start treating NFTs as securities, it could massively disrupt the NFT marketplace, forcing issuers to adopt far stricter compliance measures — or risk exit altogether.

This uncertainty might also cool future corporate enthusiasm for NFT launches until clearer rules emerge.

Why Buyers Feel Betrayed

Plaintiffs like Jagdeep Cheema claim they spent significant sums on Nike-RTFKT NFTs based on:

• Promises of future utility, such as access to exclusive drops, collaborations, and virtual experiences

• The implied credibility and stability that came from Nike’s brand association

• Belief that their NFTs would retain or grow in value over time

When Nike shut down RTFKT without offering any redemption options, migration pathways, or buyer protections, the plaintiffs argue that their “investments” were effectively wiped out.

In NFT culture, the term “rug pull” describes a sudden and deliberate project abandonment by creators, leaving investors with worthless assets. Plaintiffs argue that despite Nike’s reputation, the company’s handling of RTFKT amounted to a corporate version of a rug pull.

Nike’s Defense: What Might It Argue?

Although Nike has not filed a response yet, legal experts speculate the company could argue:

• The NFTs were marketed as digital art and collectibles, not as investment vehicles.

• Buyers assumed the market risk associated with purchasing digital assets.

• Terms of service likely included disclaimers limiting Nike’s liability for value fluctuations.

• RTFKT’s closure did not delete NFTs from buyers’ crypto wallets; the assets still exist on blockchain, even if their ecosystem wound down.

Depending on the court’s interpretation, these defenses could hold significant weight.

Conclusion: A Defining Moment for Corporate Web3 Strategies

The lawsuit against Nike represents more than just disgruntled NFT buyers — it marks a critical turning point for corporate engagement with blockchain assets.

If courts side with plaintiffs and treat NFTs as securities, companies may face:

• Higher compliance costs

• Greater litigation risk

• Harsher scrutiny of digital projects

• More cautious Web3 strategies going forward

On the other hand, if Nike successfully defends its case, it may reaffirm corporate NFTs as marketing tools — not regulated financial products.

Either way, the stakes are enormous. In a post-hype Web3 environment, brands can no longer afford to treat NFTs as experimental side projects. They must treat them with the same seriousness, diligence, and legal care as any other financial product.

The outcome of Cheema v. Nike could set the tone for how companies worldwide approach digital collectibles, blockchain ecosystems, and the evolving frontier of commerce in the 21st century.

Stay tuned — this battle between consumer rights, corporate innovation, and regulatory uncertainty has only just begun.

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