Blockchain project, Tezos, faces class-action lawsuit

On October 25, a class-action lawsuit was filed with the Superior Court of the state of California by Andrew Baker, a Tezos ICO contributor. The lawsuit lists multiple defendants, including the Tezos co-founders, Kathleen and Andrew Breitman, as well as Johan Gevers of the Zug-based Tezos Foundation. Also included in the list of defendants are the Tezos Foundation, a non-profit Swiss foundation set up to manage the funds raised; Delaware-based company, Dynamic Ledger Solutions Inc.; and Strange Brew Strategies, a communications firm that promoted the project ahead of its ICO.

Plaintiff Baker is being represented by the San Diego-based law firm Taylor-Copeland Law and alleges that the defendants violated the U.S. securities law by selling unregistered securities, false advertising, committing securities fraud, alter ego liability, and unfair competition. He seeks restitution for himself and all other Tezos investors.

Baker had invested in Tezos by purchasing 5,000 tokens with a single Bitcoin, worth $2,800 at that time. He claims that his decision to invest in Tezos was based on false representations that the Tezos network would be operational by December 2017. However, the twin founders recently disclosed in a blog post that Tezos tokens, or “tezzies,” cannot be issued before February 2018. “To say that we regret the delay is an understatement,” the Tezos founders added.

In July, Tezos raised $232 million in one of the largest ICOs ever. Last month, a dispute within the company became public when the co-founders had accused Johann Gevers of “self-dealing”. Gevers alleged that they were seeking to usurp control of the Tezos foundation and assassinate his character. Consequently, the squabble raised questions concerning the ability of such a company to have raised so much money.

Samuel S. Guzik, a prominent securities attorney, commented on the Tezos lawsuit. He said, “In my experience in testifying in state securities law proceedings, most state court judges are [admittedly] inexperienced in securities laws. Couple this with a sympathetic plaintiff, and I expect that the resulting decision may be unsatisfying to many of us in the securities bar and the ICO ecosystem who have been wrestling with this issue. What is sorely needed is some further guidance from the Securities Exchange Commission (SEC), beyond the July 2017 “DAO Release” – with the input from industry stakeholders.  But that will be easier said than done, as this area is both complex and evolving rapidly.”

This lawsuit may set a precedent for how the cryptocurrency may be regulated in the future. While many ICOs are trying to follow in the footsteps of Tezos, what becomes of this lawsuit may be a defining moment for the ICOs and how this industry may be regulated in the future.