Here’s All The Class Action Lawsuits Happening In The ICO Industry Right Now
2017 and early 2018 saw a wave of securities class action litigation targeted at ICO companies. Some of the companies involved in defending class action lawsuits are Tezos, Centra Tech, Coinbase and others. A common theme in many of these lawsuits is the plaintiff’s allegations that digital tokens are securities and should be marketed in strict compliance with securities regulations in the US.
Another common theme is an allegation of fraud and misrepresentation, going after original representations in the White Paper and the actual status of product development at the time of litigation.
Publicly traded companies are no stranger to defending shareholder litigation and many active securities class action law firms are actively filing lawsuits again ICO companies. There are definitely many similarities between publicly traded companies with shareholders and large ICO companies with tens of thousands of token holders spread across the globe.
However, many ICO companies continue taking a stance that their tokens represent digital assets other than securities, the so-called “utility tokens”. In addition to SEC publishing recent guidelines in this space, the wave of litigation will also likely establish precedents and clarify best practices for token sales going forward.
Many foreign ICO companies are actually repeatedly closing their token sales to US participants in fear of being implicated in future class action litigation. Likely majority of pending class actions will ultimately settle, repeating the statistics true for securities litigation in the public companies space.
With over $3.25 Bn raised in ICOs by October 2017 speaks volumes of the mere popularity of ICOs as a new fundraising mechanism. However, this new, unexpected, and fast development also has some discrepancies and challenges that have attracted lawsuits against ICOs.
The last quarter of 2017 and early 2018 saw a wave of securities class litigation targeted at companies raising funds through their ICOs. Most of these companies failed to comply with the securities laws and hence were liable to face regulatory actions.
Tezos: A classic example of securities class action litigation against popular ICOs.
Just in a month, in July 2017, the Tezos project raised over $230M through their ICO. This was a very popular project similar to Ethereum and aimed to develop a similar platform. In October 2017, a securities class action lawsuit was filed against Tezos in a California court.
The major allegations against Tezos were that they misrepresented the relationship between the investors and did not clarify and stick to how the funds would be spent along with the timeframe for the project completion.
So, what’s common in all of these litigations?
“Plaintiffs allege that digital tokens are securities and should be marketed in strict compliance with securities regulations in the US. Another common theme is an allegation of fraud and misrepresentation, going after original representations in the white paper and the actual status of product development at the time of litigation.”
The other popular ICOs facing such lawsuits are Centra Tech, Monkey Capital Market, Bitconnect, Coinbase and others. The basic criteria for any securities litigation to be classified as a class action litigation is that there should be an element of commonality as in the grievances of the claimants and these ICOs did qualify for class action litigation.
Here’s a comprehensive list of companies sued, case name along with the date of the complaint and the Law firms involved.
The grounds for securities class action litigation
The popular grounds which are quite common in all securities class action litigation against popular ICOs are:
- Deceptive or False advertising: Most of the ICOs are advertised digitally through various social media platforms. The claims in the advertisements could be misleading and anybody who purchases or invests in ICO tokens based on such advertisements could claim against any deceptive or false statements made in the advertisement. The consumer protection laws provide security against such unfair practices.
- Status of the project: Any false or misleading information about the status of the project is a breach of good faith and that creates ground for an investor to file a lawsuit against an ICO. Any discrepancies in information shared with a token holder in regards to the project status could also lead to a lawsuit against the company organising the ICO.
- Failure to comply with the terms of the contract: Every investment made involves a contract that is explicit and binding in nature. The failure of the companies to comply with the terms of the contract is a prominent reason to get sued.
- Non-compliance with Securities laws: As tokens basically fall under the category of securities, the failure of companies to comply with the securities laws and not protecting the security holder’s interests is another prominent reason for litigation against ICOs.
- False claims in the white paper: Any ICO that makes false claims or statements made in white paper risks litigation. Claims regarding the expenditure of funds raised which is not true is another common reason for litigations.
There are definitely many similarities between publicly traded companies with shareholders and large ICO companies with tens of thousands of token holders spread across the globe. However, many ICO companies continue taking a stance that their tokens represent digital assets other than securities, the so-called “utility tokens”.
In addition to SEC publishing recent guidelines in this space, the wave of litigation will also likely establish precedents and clarify best practices for token sales going forward. Many foreign ICO companies are actually repeatedly closing their token sales to US participants in fear of being implicated in future litigation.
