Powers On… Why the fear of ICO enforcement and responsibility is coming to an end

power ups… It is the monthly opinion column of Marc Powers. For most of his 40-year legal career, he has dealt with complex securities-related cases after working with the US Securities and Exchange Commission. He is now an adjunct professor at the Florida International University School of Law, where he teaches a course on “Blockchain, Encryption, and Regulatory Considerations.”

Okay, okay, okay. Some class action law firms seem to be looking for possible securities claims in order to seek investors’ fees and recourse, sometimes arrogantly under the banner of investor injury and rights. This seems to be being treated coldly by the Federal Court in the Southern District of New York (SDNY ). This is good news for the emerging blockchain industry and investors who own tokens in legal blockchain businesses such as Bancor, Status, and Quantstamp. It is important to emphasize these court rulings, even if they were made a few months ago.

The pending case of a class action lawsuit, like the US Securities and Exchange Commission’s own independent lawsuit, may be serious for both the individual founders listed as defendants and the companies they have established. They caused financial and reputation losses due to specious claims. The good news is that when the two SDNY judges faced more than 190 pages of complaints in these lawsuits, they have so far independently determined that the complaints should be dismissed.

As described below, shortly after these two failures-with the obvious tail tucked between the legs-the plaintiff voluntarily agreed to dismiss the other five lawsuits. So far, the only compensation that the plaintiff has received is the settlement. In 11 lawsuits, Fight against EOSIO developer Block.one. But this may be because of Block.one Have settled before The US Securities and Exchange Commission accused it of making similar claims and obtained $4 billion in bank funds from its initial coin offering (ICO).Motion to dismiss Litigation against Binance and TRON Unprocessed. At least for Tron, the plaintiff will undoubtedly suffer the same fate as other litigations and be appropriately dismissed by the judge assigned to the case. In the only remaining lawsuit against KuCoin, the exchange or its clients never showed up.

related: “Bloody Friday” lawsuits in the crypto industry: do they matter?

Background and background

For those who are not familiar with these class actions, let me provide some background and background. April 3, 2020, exactly one year after the SEC’s release release Its “Analysis Framework for Digital Assets’Investment Contracts'”, 11 Class action has been filed In SDNY, two law firms represent various combinations of the four proposed main plaintiffs. In some cases, these plaintiffs personally lost hundreds of dollars at most. The premise of the lawsuit is alleged to be the sale of unregistered securities in the ICO or the operation of a trading platform (exchange) for the purchase and exchange of tokens.

These actions are claimed to be based on Article 12(a)(1) Violation of the Securities Act of 1933 Section 5, Which makes it illegal to make non-exempt offers and sell securities without filing a registration statement with the SEC.Also asserted the “controlling person” liability claim Article 15(a) Securities laws against the founders and managers of the defendant organization, as well as various state securities law claims.I have never bought the theory of responsibility, I have bought it before written Regarding the potential defenses in these cases, these defenses should frustrate the claims.

My main defenses include the one-year statute of limitations (SOL) applicable to Article 12(a)(1) claims, in which several law firms represented the defendants in many subsequent motions for dismissal. In order to bypass this SOL, the plaintiff’s lawyer tried to create an unsupportable fiction. In other words, when the plaintiff purchased tokens in the ICO, they were told that these tokens were not “securities” in the sense of the Federal Securities Law. It was not until the US Securities and Exchange Commission issued the framework in April 2019 that they understood that tokens are likely to be “securities” and that they should be registered with the US Securities and Exchange Commission under Article 12. Therefore, they filed a claim within a year in early April 2020 to make them timely. To me, this is a poppy! So far, two federal judges Denise Cote and Alvin Hellerstein also agree with this view.

As of April 2019, the SEC has filed six lawsuits against companies and/or their responsible persons involved in ICOs for violating Article 5.This is after SEC’s DAO report Several public speeches by SEC commissioners and officials in July 2017 and 2017 and 2018 pointed out that ICO may be the issuance of “securities.”

related: It’s time for the U.S. to create a “ripple test” for cryptocurrencies

The other important defense is whether the plaintiff is “qualified” to make these claims. According to the U.S. Constitution, Article 3, The chief plaintiff must suffer “actual harm” to sue someone.In addition, the Supreme Court in Pinter v. Dahl (1988) rule For the Article 12(a)(1) claim, there needs to be some privacy between the purchaser of the “securities” or tokens and the seller of the “securities” or tokens. In addition, our article last year highlighted the possible jurisdictional defenses of many foreign defendants who have never set foot in the United States.

Some recent examples

In a class action lawsuit against the Bibox exchange, Bibox allegedly operated an exchange that traded five “securities” tokens and its own native token, Bibox Token (BIX)-all of which were unregistered . In a 33-page detailed analysis of the BIX token and five other tokens, Cote found that they have different characteristics. In addition, she pointed out that the main plaintiff in the case only purchased BIX and did not purchase any other tokens, and he only purchased these tokens on Bibox more than six months after the end of the ICO.Therefore, in its opinion submitted on April 16, 2021, the court held that the plaintiff Lack of representation He also does not have the type of token purchaser to purchase. Cote also believes that the one-year SOL bans BIX tokens and other claims in the second revision complaint.

Hellerstein Took a different approach In the Bancor case. Although there is no such detail and analysis in its six-page opinion on February 22, 2021, the court pointed out that the plaintiff allegedly purchased 587 BNT at a total cost of US$212.50 and had not sold these as of an unspecified date. coin. In view of the lack of specific allegations of damage, the motion to dismiss on the grounds of lack of prestige was approved. The court also pointed out that the defendant is located in Israel and certain promotions of the token-such as global websites and personal appearances in New York, Singapore and Berlin-are not sufficient to constitute personal jurisdiction over the defendant.And in order to make his position beyond doubt, in a nutshell, he believes that Article 12 claims lack privacy, according to the Supreme Court’s teaching Decide In Morrison v. National Australia Bank Ltd. (2010), claims involving foreign defendants buying and selling “securities” outside the United States should not be heard in SDNY, and the one-year SOL requires rejection.

takeout

As mentioned above, once these judges dismissed the two class actions, the plaintiff’s law firm was involved in the other five lawsuits. willingly Dismissed their lawsuit Late April 2021-In some cases, defense lawyers don’t have much urging. Presumably, the lawyer for the main plaintiff saw the proverb on the wall. Their actions, perhaps the wealth they envisioned for themselves and class members, are based on a theory that is smarter than one-half. From my point of view, the court’s ruling is in line with the law. So far, 7 of the 11 lawsuits have been dismissed, thereby achieving justice.

Another note of these cases is that due to SOL, the time to file lawsuits against thousands of companies participating in ICOs is about to end or has ended. Even federal claims for securities fraud are subject to the two-year SOL. Given that most ICOs have ended in 2018, these companies will not be affected by class actions.

At this point, in addition to litigation based solely on state legal causes, the only viable remaining litigation is a US federal securities claim filed by the US Securities and Exchange Commission or the Department of Justice. But even those who actually had five-year SOL from the defendant’s last alleged illegal activity, because there is no more scientific requirement for violations to occur.This is the teaching of the Supreme Court Decide In Kokesh v. SEC (2017). Therefore, the government needs to start taking any action sometime in 2022. After that, the fear of ICO enforcement and responsibility will become the rearview mirror of the blockchain industry.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

Mark Bowles He is currently an adjunct professor at the Florida International University School of Law, teaching “Blockchain, Encryption and Regulatory Considerations” and “Fintech Law”. He recently retired from a practicing position at the Am Law 100 law firm, where he established a national securities litigation and regulatory enforcement practice team and hedge fund industry practice. Marc started his legal career in the law enforcement department of the SEC. During his 40-year legal career, he participated in lawsuits including the Bernie Madoff Ponzi scheme, the recent presidential pardon, and the Martha Stewart insider trading trial.

The views expressed are those of the author and do not necessarily reflect the views of Cointelegraph or the Florida International University School of Law or its affiliates. This article is for general reference only, and should not and should not be regarded as legal advice.

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