Two class actions have been initiated in the US against blockchain startup, Tezos, in relation to its US$232 million ICO earlier this year. Filed in California and South Florida, both actions focus on allegations that Tezos violated US securities law by offering tokens that represented securities, despite failing to register with the SEC. Additionally, there are allegations that Tezos made misleading statements to token purchasers regarding the internal operations of the company, misrepresenting the development of the project and falsely marketing Tezzies as charitable contributions.
Both suits cite the SEC’s report on the DAO, indicating that many tokens offered in ICOs are securities and are subject to applicable law. The inherent nature of the Tezzie token is such that it derives its value from the usefulness and popularity of Tezos’ underlying technology. It is alleged that the recent disclosure of the delay in development of the technology caused the value of the Tezzie token to be reduced by half, to the detriment of purchasers. The plaintiff and class members of both suits argue that Tezos is not protected by the ‘safe harbour’ defence, which is usually granted for forward-looking statements.
The plaintiffs are seeking a remedy which will allow purchasers to rescind their token purchases, in addition to damages. The reaction to ICOs has varied significantly around the world, with some financial regulators adopting starkly different positions. As one of the first suits to be initiated in relation to ICOs, the outcome of this action will hopefully provide some clarification as to the legal status of ICOs within the US.