Tezos (XTZ) class action lawsuit by Block Leviton law firm is expected to end on August 27 in a $ 25 million settlement. Tezos, like many initial coin offers in 2017 (ICOs), was examined by investors and regulators. It was also alleged that selling his token was an illegal offer of securities.
In fact, the U.S. Securities and Exchange Commission was very stringent as numerous ICOs of the 2017 era requested sanctions for securities breaches. Even distributions to non-US citizens, like the Telegram case, were excluded from SEC radar.
The SEC has consistently claimed that most ICOs are unlicensed securities offerings, although the country’s stakeholders are unwilling to exempt a wider range of tokens from securities regulation. With more and more jurisdictions paying more attention to cryptocurrency collecting, the ICO model seems to be a thing of the past, with a stronger focus on regulated token sales.
An agreement to control them all
At the end of October 2017, Block Leviton uncovered that he initiated an investigation into the Tezos ICO for security fraud. In mid-December 2017, the law firm specializing in securities cases, based in Boston, sued key players in the Tezos ICO.
At the time Block Leviton initiated its own lawsuit, the Tezos Foundation and Dynamic Ledger Solutions, the company founded by Tezos co-founder Arthur Breitman, You had already been the subject of two other lawsuits. In November 2017, the cases against Tezos were also brought before the Federal District courts in California and Florida.
The lawsuit also took place in the midst of a power struggle within the same project. This internal dispute even affected the launch of the XTZ tokens for investors who participated in the ICO in July 2017 for $ 232 million.
In early 2018, the SEC declined plaintiffs’ requests for information in the Florida case. According to the SEC at this time, the publication of such documents could hinder future compliance activities. The U.S. Securities and Exchange Commission has so far not filed charges against the main players in the Tezos ICO.
As of August 2018, these lawsuits were consolidated in one case before the Northern California District Court. As Cointelegraph reported at the time, US District Judge Richard Seeborg refused to accept the defendant’s motion to dismiss the case, paving the way for further action.
Because the court refused to dismiss the case and the lawsuit lasted approximately two years, the Tezos Foundation announced its intention to reach an agreement in March 2020. At that time, the foundation said that a single settlement would be preferable to the legal fees associated with a protracted litigation.
Immunity to the SEC for $ 25 million
In early May, Cointelegraph reported that the court had granted preliminary approval for a $ 25 million settlement in the class action lawsuit against the Tezos ICO. In an email to Cointelegraph, a spokesman for the Tezos Foundation commented on the decision to resolve the case, saying:
“The Tezos Foundation has decided to resolve all disputes because it believes this is in the best interest of the project. Tezos and its entire community want to resolve all pending claims. The Foundation continues to believe that the lawsuits were unfounded and continues to deny any wrongdoing. However, the lawsuits are costly and time-consuming, and the Tezos Foundation decided that the individual financial costs of a settlement should be preferred to the associated distractions and legal costs. The Tezos Foundation can now focus on its mission to support the long-term success of the Tezos protocol and ecosystem. “
Block Leviton has already notified Tezo’s ICO investors to file complaints to be considered for part of the liquidation offer. The final arguments in this case will take place in August. At that point, the court will determine whether the $ 25 million is an appropriate refund to the plaintiffs and whether the legal fees are included in the payment.
Despite the decision to settle the lawsuit, the Tezos Foundation claims that its ICO did not violate any law in 2017 and explains:
“The foundation does not believe that it did something wrong and does not admit that it did something wrong under the agreement.”
Cointelegraph also contacted legal representatives on both sides of the case, but has received no comment at this time.
In addition to ending consolidated class action lawsuits, the $ 25 million settlement could also prevent future SEC enforcement actions. Quentin Herbrecht, CEO of the blockchain marketing platform Markchain, made a similar argument in a conversation with Cointelegraph.
According to Herbrecht:
“The plaintiffs, along with the general belief, believe that Tezos has agreed to resolve the fine to prevent the SEC from re-characterizing its ICO as an illegal security offering, which could have been a fatal blow to the project “I firmly believe that the deal, if approved, will be a lesser evil for the Tezos Foundation and the team, which currently have more than $ 635 million in various assets.”
For the Tezos Foundation, completing the case gives project developers a clearer way to achieve their stated goals. A spokesman for the foundation told Cointelegraph:
“The rapid growth of the ecosystem is clearly evident in a growing interest in building on Tezos. Between the BTG Pactual edition of ReitBZ for the Tezos blockchain, the creation of tzBTC, a 1: 1 bitcoin-based token for the Tezos blockchain, created by a group of Swiss cryptocurrency companies and a number of industry-leading development tools, which Tezos has integrated, like Truffle and Magic, we see more and more use cases and implementations. We look forward to seeing what the rest of 2020 has in store for us. “
The SEC compliance hammer and the disappearance of the ICO model
While the Tezos Foundation could escape the SEC, the Commission has followed ICOs and fined millions for project violations. In one of the highlights of 2020, the SEC telegram was directly oppositeThis led to the planned cryptocurrency operation being disrupted after more than $ 1.7 billion in presale was raised in 2018.
For Herbrecht, who is also a consultant and project evaluator for Horizon 2020 of the European Union, The problem is that the projects do not understand the US Securities Regulationand adds:
“In my view, it was important for the SEC to focus on ICOs to achieve regulation and prevent malicious players from taking advantage of less experienced investors. […] We can clearly see that the SEC is currently at war with ICOs that have not registered their token as a value (and have their properties), using Bitclave as an example recently. It is therefore up to the project manager to collect donations in the United States, to be aware of these laws and obligations, to comply with them, or to find a way to make their tokens at the risk of being “useful” and 100% safe the SEC. “
The SEC’s ICO enforcement measure has not saved celebrities like boxing champion Floyd Mayweather and music producer DJ Khaled, both of whom are accused of illegal ratification activities. Both defendants eventually saw their parts of the matter withdrawn from the case.
However, there is some controversy that SEC enforcement measures are not the same in all cases. Commission critics say that some projects are forced to pay heavy fines while others only get off with a pat on the wrist.
The lack of clarity about how securities law should be applied to ICO tokens also affects the cryptocurrency trading scene on U.S. soil. Trading platforms in the United States, which are cautious with regulators, are often forced to geographically fence certain Altcoin tokens or create separate trading platforms for their customers in the United States.
Congress is currently considering various bills such as the Token Taxonomy Act and the Cryptocurrency Act of 2020. The first goal is to create a provision where altcoins tokens are not subject to securities regulation, while setting a minimum tax exemption for cryptocurrency income that lowers a certain threshold. Among other things, the last law aims to divide digital assets into separate categories and the federal supervisory authorities responsible for each table.
SEC’s tireless action against ICOs has been reported to slow the donation method. With regulators around the world who insist on regulated token offerings Startups seem to be turning to equity financing or creating security token offerings (STOs). In March 2020, Cointelegraph reported that fundraising from ICOs decreased 95% year over year in 2019.