Following similar suits against Tezos and Centra, another initial coin offering that opted not to register with the Securities and Exchange Commission (SEC) faces a class-action lawsuit alleging its cryptocurrency should be considered a security.
On December 21, Raymond Balestra filed a class action suit in the Southern District of New York against ATBCoin LLC, Edward Ng (CEO) and Herbert W. Hoover (co-founder). Seeking a jury trial from the court, the plaintiffs alleged that ATBCoin had violated the Securities Act by issuing unregistered securities with the expectation of profit in the form of the ATB coin and the placement of all remaining funds invested into a trust, in the interest of investors.
The complaint alleges:
“The ATB ICO was a clear offer and sale of securities because, inter alia [among other things], Defendants touted, and Plaintiff and other ATB ICO investors reasonably expected, that the ATB Coins received in exchange for their investments would be worth more than the ETH, BTC, LTC or other currencies invested.”
Offered as a fast and inexpensive blockchain-based payment system, ATB's initial coin offering launched on June 12, to run through July 12, according to a blog post. The plaintiffs alleged that the offering effectively continued into September, with a second phase in August and a press release on September 11 announcing it was still open to investment. On the ATB blog, the company announced that sales were closed on September 8 and that distribution would take place on September 14.
The plaintiff invested 2.1 ETH on August 12 (approximately $621.62 at the time, according to CoinDesk's Ethereum Price Tracker). It is not known how many people invested or how much was raised, but the complaint estimated the total to be somewhere "between $20,400,000 and $24,210,000” in bitcoin, ether and litecoin.
The case made similar allegations to those of other investors against other ICO projects such as Tezos and Centra Tech, in which similar arguments from plaintiffs were made that tokens offered by these ICOs should be seen as securities.
In addition, legal experts also weighed in arguing that private complaints against initial coin offerings may force the courts to define which cryptocurrencies are considered as securities before the Securities and Exchange Commission (SEC).
Drinker Biddle's Jim Lundy, a veteran of the SEC who represents clients in securities cases, told CoinDesk, that the complaint is "following a typical securities class action format for a public offering.” He said, “This theory is that item itself, the ATB Coin, is a security. I don’t doubt that the defendants will move to dismiss that, and the judge will have to rule.”
Participants in the crypto-economy have been waiting for greater clarity from the courts or the SEC on which kinds of coins are securities under U.S. law. Even getting to that ruling is likely to take months, however.
Another SEC veteran, Timothy Peterson, now of Murphy & McGonigle, agreed that a motion to dismiss should come shortly, adding that "it’s likely the court will look at the SEC’s 21(a) report on DAO for guidance, but it’s important to note that the 21(a) report is not controlling. That is, the court can come to its own conclusions about what is and what is not a security for purposes of federal securities law."
"I think we can expect to see more of these complaints in the future, especially once courts begin to carve out tests to define how cryptocurrencies should be regulated or examined. More facts will need to come out before it’s fair to comment on the merits of these particular allegations."
The full filing may be read here:
Justice lady image via CoinDesk archive.