Tezos ICO Investors Strike Back
It was expected and now it is official. The first lawsuit against the Tezos Foundation (Johann Gevers, the main Swiss trustee, Kathleen and Arthur Breitman, and their company Dynamic Ledger Solutions Inc.) has been filed in the San Francisco court. The class action lawsuit on behalf of all of the 30,000+ investors alleges Tezos sold unregistered securities, committed fraud, and made false advertising among many other claims.
I have been covering the Tezos ICO since September (read Breaking Down a Top ICO and The Greek Tragedy) and at that time Tezos was touted as the largest ICO ever and a huge success. They went on a PR bonanza to celebrate their incredible deal: They were to receive 8.5% of the Bitcoin/Ether payments, estimated at $40M, and 10% of all of the Tezzie coins, which was estimated to be an additional $100Ma total $140M whopper. The press was only reporting the amount raised but not the bizarre commission structure to be paid by the Tezos Foundation to the founders.
Finally, the investors woke up and are now asking for justice.
In the complaint, the plaintiffs are arguing the Tezzie is a security because the coins are an investment in a common enterprise, with expectation of profits, solely from the efforts of others. This sounds like the 71 year old Howey Test, or my own whimsical Howard Six Point Test.
The big and troubling question is what is going to happen to all of the other ICOs that have also raised millions of dollars in Bitcoin and Ether for selling utility tokens? I wrote about Gimli and Paragon whose patterns are similar. It would be a safe bet to say that plaintiff lawyers are going to have a field day suing all of these ICOs, especially if investors lose money in the process.
Second question: What happens to all of these trading platforms that are selling securities? The best guess is they either register to become Broker-Dealers or wait until the SEC shuts them down.
The Tezos scandal is the tip of the iceberg of what is going on with unregulated ICOs. The obvious remedy is for those companies to use the JOBS Act to offer their tokens as securities. In this case everyone wins: the investors are able to make an informed decision and company, along with its founders and officers, can sleep well at night.
In 2017 alone, over $3B has been raised by ICOs around the world. This is incredible growth with no end in sight. Companies running ICOs need to quickly shift gears and use the JOBS Act for their offerings. Time is running out.
StartEngine does not endorse or highlight any individual companies on our website. We prepare a company interview for all new companies our website. Readers should not consider statements made in this post as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:http://startenginebetadev.s3.amazonaws.com/production/pdfs/Disclaimer.p
