In this issue:
- Anderson v. BinanceNo. 1: 20-CV-2803 (ALC), 2022 WL 976824 (SDNY 31 Mar. 2022)
- Digilytic Int’l FZE v. Alchemy Fin., Inc., Number 20 CIV. 4650 (ER) 2022 WL 912965 (SDNY 29 Mar 2022)
- Diamond Fortress Techs., Inc. v. EverID, Inc., 2022 Del. Super. LEXIS 151 (Super. Ct. Del. 14 April 2022)
- complaint, Liang v. Bara(D. Conn. 14 April 2022), (No. 3: 22-cv-00541)
- complaint, Risley v. Universal Navigation Inc., (SDNY 4 April 2022), (No. 1: 22-cv-02780)
- complaint, Ford v. Koutoulas, (MD Fla. Filed April 1, 2022), (No. 6: 22-cv-00652)
Anderson v. Binance,
No. 1: 20-CV-2803 (ALC), 2022 WL 976824 (SDNY March 31, 2022)
This is an important decision and order from Judge Carter dismissing one of the last 11 lawsuits filed jointly by Roche Freedman LLP and Selendy Gay Elsberg PLLC in April 2020 against issuers of token and exchange securities for issuing and trading in unlisted securities . Judge Hellerstein dismissed the lawsuit against Bprotocol in February 2021 and Judge Cote dismissed the lawsuit against Bibox in April 2021. Holsworth v. BProtocol Found., No. 20-cv-2810 (AKH), 2021 WL 706549, ing *3 (SDNY Feb. 22, 2021); In again Bibox Grp. Holdings Ltd. Sec. Litig., 534 F. Supp. 3d 326 (SDNY 2021). Thereafter, plaintiff’s attorneys voluntarily rescinded several of the actions but continued to oppose Binance.
The Second Amendment complaint considered in the motion to repeal this is 327 pages and includes 154 causes of action under the Securities Act, the Exchange Act, and the state’s Blue Sky laws. In particular, like the other Roche and Selendy exchange cases and like Risley below, the plaintiffs allege that Binance operated as an unlisted exchange trader and broker and also issued unlisted securities, in violation of Section 12 (a) (1 ) The Securities Act and 29 (b) of the Exchange Act.
Similar to other cases like this, the question of whether the various tokens issued as securities in Howey was not sued in the motion to dismiss the stage. However, the defendants denied that the claim was prohibited by the statute of limitations and Morrison.
With regard to the statute of limitations, the Court held, as has been done before, that a claim under Section 12 (a) (1) of the Securities Act must be made within one year after the purchased token is purchased. The court further held that there was no fair doctrine that allowed the application of the discovery rule and therefore all claims relating to tokens purchased more than a year prior to filing a lawsuit were prohibited.
For section 12 (a) (1) of a claim relating to two tokens purchased within one year after filing the lawsuit, the Court held that such time was also prohibited because the only route the plaintiffs could take was by way of. contending defendants were statutory sellers under solicitation theory and they only alleged solicitation acts that occurred more than a year before the suit was brought. That is, the “violation” committed by the plaintiffs under the Securities Act is a plea and “[t]statute of limitations running for one year ‘after violation upon which it is based.’ ”(quoting 15 USC § 77 (m)).
Regarding the Exchange Act Section 29 (b) lawsuit, the Court ruled that they were subject to the rules of discovery, but the plaintiffs only stated that they were aware of the new legal rights, not new facts when the SEC staff published in April 2019 the new framework. to analyze crypto tokens in Howey. The court ruled this was insufficient, because the finding rule requires a study of facts not law and because, in any event, the SEC staff’s April 2019 publication is a “non -binding interpretation of Howey.”
The court next considered whether Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 267 (2010) prohibits such claims because of ownership that “federal securities laws apply to such transactions in securities listed on a domestic exchange, and domestic transactions in other securities.” The court held that the plaintiffs had established only one infrastructure connection between Binance and the U.S.: Amazon Web Services ’U.S. -based computer servers. The court held this relationship, even combined with the use of English on Binance’s website, some employees in California, and U.S. job submissions “not enough to treat Binance” as a “domestic exchange.” The court further held that the plaintiff’s allegation that he was in the U.S. when he purchased the token and purchased it through a server located in California was not sufficient to make the purchase a “domestic transaction” because the allegation simply could not show that “irrevocable liability was imposed. Or title over with the United States ”(citing Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60, 66, 67 (2d Cir. 2012)).
Finally, the Court held that the plaintiffs ‘Blue Sky claims under the laws of the defendant states not to prosecute the plaintiffs’ trade were negligible because there was no adequate relationship to the claim. The court further held that plaintiffs’ claims under state law from the five states from which they purchased tokens were also dismissed according to Morrison’s analysis were applicable to federal claims.
Digilytic Int’l FZE v. Alchemy Fin., Inc.,
Number 20 CIV. 4650 (ER) 2022 WL 912965 (SDNY 29 Mar 2022)
This was a decision and order by Judge Ramos that gave part of the motion to dismiss the individual plaintiff, CEO of Alchemy Finance, who represented himself.
The complaint alleges that the two founders of Alchemy Finance conspired to take advantage of a growing interest in crypto in early 2018 by writing fake white papers and then inducing traders to invest in fake ICOs, including promoting the project with false claims of investment by Dubai -based investors . Using that strategy, the complaint alleges that the defendants caused the plaintiffs to execute a token purchase agreement and a consultation agreement and transfer the funds to the defendant. This brings claims for breach, fraudulent inducement, unjust enrichment, violation of Exchange Act Section 10 (b) and Rule 10b-5, Securities Act violations Section 12 (a) (1) and 17 (a), and RICO violations, among others.
After evaluating many of the arguments by the plaintiffs, the Court held that the unfair enrichment claim was a duplicate of the fraud induction claim and the plaintiff had abandoned the Securities Act 17 (a) claim but all other claims survived.
Diamond Fortress Techs., Inc. v. EverID, Inc.,
2022 Del. Super. LEXIS 151 (Super. Ct. Del. 14 April 2022)
The case is a breach of contract that occurred because EverID allegedly failed to compensate Plaintiff to help develop EverID’s cryptocurrency trading platform and mobile application. Under the parties ’contract, EverID must provide remuneration to Plaintiff with an“ ID Token, ”an EverID token, at the start of the ID Token and subsequent offers. Plaintiff filed the lawsuit after several ID Token offers and Defendant failed to provide any tokens. EverID never appeared and Plaintiff filed a standard verdict.
The court first noted a limited history where the applying court Howey had determined cryptocurrency as a security, cited to Hodges v Harrison, 372 F. Supp. 3d 1342, 1348 (SD Fla. 2019), Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340, 347, 353 (SDNY 2019), SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 364–65 (SDNY 2020), SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169 (SDNY 2020). After evaluating the Howey factor, and stating that “[c]Ourts generally classifies cryptocurrency as a security when economic damage is directly related to or arises from the ICO, ”the court also said that the ID Token in question is a security.
After finding that the ID Token is a security, the Court also found that CoinMarketCap “is a reliable cryptocurrency valuation tool” and the methodology for calculating damages should be the “Highest Value in a Fair Time” method, also known as the New York Rules, which is regularly applied in cases fail-to-deliver-securities.
complaint, Liang v. Bara,
(D. Conn. Apr. 14, 2022), (No. 3: 22-cv-00541)
The case relates to digital asset platform Olympus, whose founders are known only by the screen names “Zeus” and “Apollo.” Plaintiff stated [he] has identified Apollo as Daniel Bara of Connecticut, brings claims for breach, conversion, common law fraud, and civil conspiracy, and asserts damages could exceed $ 2 billion.
Plaintiff filed a complaint alleging that it provided Olympus seed capital under a “Token Purchase Agreement” (“TPA”) and a consultation agreement, which promised Plaintiff a total of 4 million “pOHM” tokens. Olympus first committed that Plaintiff would be able to exchange this pOHM contract, which has no secondary market, 1: 1 for the popular OHM token through a series of smart contracts.
However, Plaintiff alleges that, after Olympus achieved financial success, it unilaterally withdrew from pOHM Smart Contracts, removing Plaintiff’s ability to generate any value from his investment.
complaint, Risley v. Universal Navigation Inc.,
(SDNY 4 April 2022), (No. 1: 22-cv-02780)
This is a class action against Uniswap, its CEO, and investors who say they offer and sell unlisted securities on decentralized exchanges including EthereumMax, Bezoge Earth, Matrix Samurai, AlphawolfFinance, Rocket Bunny, and BoomBaby.io.
Plaintiff brought cause of action against Uniswap for issuing unlisted securities under the Securities Act and operating as an unlisted exchange and unlisted broker-dealer in violation of the Exchange Act and causing action against Uniswap’s CEO and investors for personal liability check.
complaint, Ford against Koutoulas,
(MD Fla. Filed April 1, 2022), (No. 6: 22-cv-00652)
This is another class action against token issuers for issuing unlisted securities, this time for LGB Tokens.
The same plaintiff’s attorneys have brought variations on the claim to others as well in the past month, including Dfinity and Coinbase, as well as the actions of other plaintiff’s crypto classes that are different from EthereumMax, Robinhood, and DAG Token.
