At issue is that, although the U.S. agency tasked with enforcing securities law – the U.S. Securities and Exchange Commission (SEC) – has voiced concerns about cryptocurrency tokens (even labeling one a security), it has yet to announce much in the way of formal rules.
But while the SEC would have bearing on criminal lawsuits, courts hearing civil suits aren’t necessarily constrained or dictated by the SEC’s lack of a formal position on ICOs. Instead, these courts would make decisions based on their prior rulings and the specific circumstances of a case.
But what would that decision be? That question hinges on another: What makes an ICO a security or something else? Although attempts to interpret existing law have been made, it’s unclear even to those in the know.
Now, following the news that Tezos, one of the largest most visible startups yet to use the ICO funding mechanism, has been hit with two lawsuits, it seems lawyers and litigators are lining up to press the issue, potentially with the aim of a payday in mind.
Sara Hanks, CEO of CrowdCheck, a consultancy that assists entrepreneurs and investors with crowdfunding campaigns, told CoinDesk:
“We know of a number of plaintiffs’ lawyers around the country who are just basically collecting lists of ICOs and going ‘Hmm, I’m going to sue these people.'”
And the interest seems to be coming from lawyers working in similar sectors where a mix of lax regulation and bad actors have created the conditions for both suits and abuse.
Jaspar Ward, a partner at Louisville-based Jones Ward, which has filed class actions against fantasy sports services, sought to stress that he sees ICOs as an area of interest for precisely those factors.
“We see this as the next area where consumers could get harmed by some bad actors taking advantage of the lack of oversight or by pushing the envelope,” Ward said.
Casting a wide net
And according to some, Tezos is the prototypical defendant for such a lawsuit.
While the ideas underlying the project itself date back to the earliest days of blockchain (the white paper it’s based on has been in progress since 2014), the company has clear ties to the U.S. (which aids lawyers in the collectability of rewarded funds) and has attracted a significant number of buyers to its sale.
Dynamic Ledger Solutions, for instance, is a Delaware-based company that holds Tezos’ intellectual property and the source code for its yet-to-be-developed technology.
“The ICO most appealing to a plaintiff lawyer would be large in terms of total money raised, have a strong U.S. nexus, would have promoters and participants in the ICO who are U.S.-based, and the tokens that it would issue would reflect a claim on the share of the company’s future revenue,” explained Joel Fleming of Block & Leviton, adding succinctly: […]