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Judge Denies Effort to Move XRP Investor Lawsuit to Lower Court

A U.S. district judge has denied an investor’s effort to move a lawsuit against payments firm Ripple to a lower court.

Judge Phyllis Hamilton of the Northern District of California denied Ryan Coffey’s motion to remand his suit against Ripple Labs and affiliated entities back to the Superior Court of San Francisco after Ripple escalated the suit to the United States District Court level, court documents published on Friday reveal.

Coffey sued Ripple earlier this year claiming that the XRP cryptocurrency is a security controlled and issued by the firm.

Coffey claimed in his motion to remand that “‘cases arising under’ the Securities Act can be brought in state court and are expressly non-removable from state court.”

However, Hamilton noted that the precedents and rules Coffey cited do not necessarily apply, and a federal court can supersede the state court regardless of whether XRP is a security because of the “nationwide” nature of the class-action lawsuit.

Ripple is using the same argument in other efforts to move cases to other locations. Legal documents filed last Wednesday show the firm has filed to remove the suit brought by investor Avner Greenwald earlier this month. That suit was filed in the Superior Court of San Mateo, as previously reported, but Ripple wants to try this one with the Northern District of California as well, again citing the “nationwide” nature of the class action and the contention that damages could be in excess of $5 million.

Similarly, the San Francisco-based firm filed late last week to coordinate lawsuits brought by Vladi Zakinov and David Oconer, noting that these suits involve the same issues as Greenwald’s.

If approved, this would allow the different cases “to be joined in one court,” according to the California Courts website.

The plaintiffs will have an opportunity to respond to the motions before a judge considers whether to approve them.

Scales of justice image via Shutterstock

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Tezos ICO Class Action Looms After Motion to Dismiss Denied

A federal court judge in California has blocked a move that sought to dismiss a class action lawsuit alleging that the initial coin offering (ICO) conducted by the Tezos Foundation violated securities laws in the U.S.

The decision came Tuesday, as District Judge Richard Seeborg denied the motion filed by the Tezos Foundation and the cryptocurrency’s founding couple Arthur and Kathleen Brietman, as well as their U.S.-based company Dynamic Ledger Solutions (DLS).

As previously reported, the Tezos Foundation and DLS were facing four class action lawsuits following their ICO that raised $232 million in 2017 and was later accused of selling unregistered securities to investors in the U.S.

Based on the docket report of one case, dubbed “In Re Tezos Securities Litigations,” the class action lawsuits have now been consolidated into one with a lead plaintiff named Arman Anvari.

According to the judge’s order, the Brietmans argued in the motion that the ICO was administrated by the Tezos Foundation which is based in Switzerland and, as such, the couple and DLS should not be held liable.

However, the judge said the involvement of DLS “in establishing and aiding the Tezos Foundation rendered the two entities deeply intertwined, if not functionally interchangeable, throughout the ICO process.”

The defendants also argued as part of the motion for dismissal that the lawsuits were trying to use U.S. securities laws to govern an ICO for which “critical aspects of the sale occurred outside of the United States.”

The judge responded in the order that the realities of the ICO transactions “belie” such a conclusion, arguing:

“Anvari participated in the transaction from this country (the U.S). He did so by using an interactive website that was: (a) hosted on a server in Arizona and; (b) run primarily by Arthur Breitman in California. He presumably learned about the ICO and participated in response to marketing that almost exclusively targeted United States residents.”

Separately, the court granted the motion and dismissed cryptocurrency brokerage firm Bitcoin Suisse as a defendant, saying that “in any event, Bitcoin Suisse does not appear to be a key player in this action.”

See the court’s order below:

Tezos doc by CoinDesk on Scribd

Gavel image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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BitConnect Lawsuits Are Piling Up In Florida

Yet another lawsuit seeking class-action status has been filed in Florida against BitConnect, constituting the third legal action of its kind to be initiated in the state and the fifth overall in the U.S.

Florida residents Andrew Kline, Dusty Showers and Lena Hunt, along with Rhode Island resident Charles Mabra, filed the lawsuit in the U.S. District Court of the Middle District of Florida on Feb. 7, public records show. Additional suits have been filed in Minnesota and Kentucky.

Like the previous lawsuits filed in the past month, this one names Bitconnect’s various arms as defendants. Among the defendants cited in this instance are BitConnect director Glenn Arcaro and affiliate Ryan Maasen, as well as other unknown entities involved in the alleged Ponzi scheme.

The suit claims that BitConnect sold unregistered securities in the state and committed fraud by overstating the possible returns that users who purchased the BitConnect tokens would see. The plaintiffs also alleged that the defendants violated Florida trade and securities laws, as well as the applicable laws in Rhode Island.

The plaintiffs are seeking a jury trial, which would result in damages being levied against the defendants if they are successful. Proceeds would repay investors, as well as provide for the costs of the trial, according to the document.

Just last month, BitConnect saw its assets frozen after a previous lawsuit was filed by aggrieved investors. In the wake of the closure of BitConnect’s lending platform, the price of its BCC token has fallen, tumbling from above $300 to roughly $2.90 as of press time.

In January, regulators in Texas and North Carolina moved against BitConnect ahead of a planned token sale, issuing cease-and-desist notices before the lending platform closure announcement later that month.

A full copy of the lawsuit complaint can be found below:

Bit Connect Lawsuit by CoinDesk on Scribd

Justice statue image via Shutterstock

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US Court Freezes BitConnect Assets as Lawsuits Mount

A temporary restraining order (TRO) freezing BitConnect’s assets has been granted in the U.S. after a second lawsuit was filed against the cryptocurrency exchange and lending platform on Monday.

The order – granted by Chief District Judge Joseph McKinley, Jr. at the U.S. District Court, Western District of Kentucky  – requires the parties to disclose cryptocurrency wallet and trading account addresses, as well as the identities of anyone to whom BitConnect has sent digital currencies within the last 90 days.

The defendants have 10 days to comply with the order. In addition to the disclosures, BitConnect International PLC, BitConnect LTD, BitConnect Trading LTD and Ryan Maasen are prohibited from transferring any assets they may possess until they are granted permission by the court, according to the TRO.

The order comes in response to a second class action lawsuit filed against BitConnect after it shut down its trading and lending platform, alleging that the exchange is a Ponzi scheme.

The plaintiff, Kentucky resident Brian Paige, filed the lawsuit on behalf of every investor in BitConnect, noting that bitcoin and other cryptocurrency assets had been converted into BitConnect Coin (BCC) when the company announced it was shutting down its exchange. BCC, which was trading at more than $300 at the time, had crashed to about $6 at press time.

The court found that the plaintiffs stood to lose any chance of recovering their funds if BitConnect’s assets were not frozen, and that enforcing a TRO “is in the public interest because the public is interested in preventing massive consumer fraud and other securities violations.”

The lawsuit continued:

“This temporary restraining order is being entered without notice to Defendants to preserve the status quo and prevent irreparable harm until such time as the Court may hold a hearing.”

Due to the nature of the lawsuit and alleged securities violations, the court also noted that the plaintiff “has shown a strong likelihood of success,” and that the TRO “would present the status quo and give the Court the ability to make a meaningful ruling on the merits of this case.”

The TRO will expire on Feb. 13, according to the filing.

BitConnect Temporary Restraining Order by CoinDesk on Scribd

Law image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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BitConnect Hit With Second Lawsuit Over Ponzi Allegations

A new lawsuit has been filed in connection with the controversial BitConnect cryptocurrency investment scheme, the second such case to be filed in the past month.

The lawsuit, filed on behalf of Kentucky resident Brian Page, names BitConnect International, BitConnect LTD, Bitcoinnect Trading LTD and Ryan Maasen as defendants.

Submitted on Monday, Page is seeking to recoup losses incurred when the price of BitConnect’s token (BCC) tanked following the news that the exchange was shutting down its lending and exchange platform. As of press time, the BCC token is trading at roughly $6.20, representing a significant plunge given that it traded above $300 a month ago.

In the suit, Page accuses BitConnect of operating a Ponzi scheme, noting that investors were required to transfer their cryptocurrencies to the exchange in return for BCC tokens, which would then act as the primary investment.

Page cited BitConnect’s claims that it would provide a 3,000 percent return over the course of a year or a monthly return of 40 percent as reasons why investors would use BitConnect.

While Page acknowledges that BitConnect includes a disclosure that investors may not see a return on their deposits, the disclosure does outline various reasons why this may happen.

The filing continued:

“Not listed is that disclosure was a risk Bitconnect could unilaterally shut down its lending platform, convert all of people’s investments into BCC, tank the market for BCC by eliminating any future value of BCC, and close up shop.”

The suit also claims that Ryan Maasen, an Oklahoma resident, acted as an unregistered agent for BitConnect, and had profited from misleading investors about the potential returns they would see.

Unlike the previous legal filing, submitted in Florida by the law firm Silver Miller, Page’s suit limits itself to the companies associated with BitConnect and Maasen. Still, both lawsuits were filed in an effort to seek recompense for every investor who lost money in BitConnect.

Gavel image via Shutterstock

Class Action Complaint (BitConnect) by CoinDesk on Scribd

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Investors File Class Action Against BitConnect Following Abrupt Closure

Just a week after the abrupt closure of BitConnect’s lending and exchange platform, investors are seeking legal action to claim back their funds, according to public document.

The class action case (see below), filed with the Southern District Court of Florida on Jan. 24, alleges that BitConnect issued cryptocurrency tokens that were effectively unregistered securities and gathered additional funds as a “wide-ranging Ponzi scheme.”

In light of the recent closure of BitConnect after receiving two cease-and-desist orders by U.S. state regulators, the plaintiffs are seeking to claim back the investments they put into the company.

The document states that BitConnect launched several projects, such as a lending program that required investors to send in cryptocurrencies for BitConnect Coin, a token generated by the company’s platform.

BitConnect then allegedly promised investors that its proprietary trading platform would use the funds to generate a monthly return of 40 percent or a daily compound rate at 1 percent, which could amount to 3,000 percent annually.

As such, the plaintiffs argue that BitConnect violated the Securities Act by issuing unregistered securities. The document further points to a statement claimed to be taken from BitConnect’s website:

“You can invest BitConnect coin in BitConnect lending platform exclusively from the BitConnect Dashboard. This investment option involves profiting from BitConnect trading bot and volatility software. You will receive daily profit based on your investment options. Upon investment term completion, you will receive your capital back to take out from the BitConnect lending platform or optionally reinvest back in lending platform to continue receiving daily profits.”

Yet the plaintiffs further allege that, instead of genuinely using the funds for cryptocurrency trading, BitConnect operated as a Ponzi scheme and took funds from additional investors to realize the promise for existing investors.

According to the document, six individuals filed the case on behalf of all investors and account holders who have transferred funds – both cryptocurrencies and fiat – to BitConnect for investment. While it’s unclear based on the document how much in assets the whole class put in, the six named individuals said their loss totaled $771,000.

As reported previously, BitConnect’s closure came after two cease-and-desist orders from the Texas and North Carolina securities regulators, which subsequently led to a 90 percent plunge in the price of its BitConnect Coin, which is traded on several cryptocurrency exchanges.

At press time, BitConnect had not responded to a CoinDesk inquiry.

Class Action Complaint (BitConnect) by CoinDesk on Scribd

Judge’s gavel image via Shutterstock

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I Love Bitcoin. That's Why I Sue Exchanges

David Silver is the founder of Silver Miller, one of the preeminent plaintiffs’ law firms in crypto litigation. Silver Miller prosecutes cases against wayward cryptocurrency exchanges and misleadingly presented crypto-investment offerings. The firm is focused on representing victims of financial fraud.

The following article is an exclusive contribution to CoinDesk’s 2017 in Review.


“You take the blue pill, the story ends. You wake up in your bed and believe
whatever you want to believe. You take the red pill, you stay in Wonderland,
and I show you how deep the rabbit hole goes.”
– Morpheus, “The Matrix” (1999)

I grew up the son of a personal injury lawyer in New York and have been exposed to the law my entire life. I worked in Washington, D.C. for nearly 10 years at one of the largest and fanciest law firms in the country before I started my own firm. I have even represented high-profile and high-net-worth people and companies.

None of this fully prepared me for my entry into the world of digital currency. It was like Keanu Reeves entering his own digital world in “The Matrix,” and it happened at a South Beach bar in 2014.

After a few drinks, one of my friends took out his smartphone and sent me 5 BTC to impress our other friends. Much like when Neo swallowed the red pill that was offered to him, getting those bitcoin introduced me to a Wonderland in which I learn every day how much deeper the rabbit hole goes. (By the way: Thank you, unnamed friend! I have yet to move those bitcoin and have them sitting in the same wallet where you placed them almost four years ago!)

But I’m also active in the industry in another way.

In the last three years, I have filed lawsuits against Cryptsy, Coinbase, Kraken, Tezos and Monkey Capital to name a few. More lawsuits are coming in the days, weeks and months ahead. Dare I say, I have filed more litigation in this space than any other lawyer in the country. I travel the country speaking at conferences, lectures and on TV.

I have been quoted in articles published by CoinDesk, Reuters, Bloomberg and The Financial Times regarding cryptocurrency and bitcoin as an investment.

People ask me all the time: “Is bitcoin a good investment? If so, where should I buy it?”

From my unique perspective in the cryptocurrency Wonderland, I tell those people: “I have absolutely no $#@#$!% idea whether the price of bitcoin is going up or down, what alternative cryptocurrency you should buy to invest in today, or where you should buy it!”

The next question is usually: “Seriously, what should I do?” I can only laugh and think to myself: “If I knew the answer, I would invest myself.” For your information, I don’t; simply because I do not know what the price of bitcoin is going to do. If I did, I would have invested in 2014 after my friend gave me those first five bitcoin.

The exchange lie

What I do know, and what I can speak about somewhat intelligently, is the universal myth that currently exists for people who are first experiencing cryptocurrencies: that all U.S.-based crypto exchanges are the same.

This myth is the single biggest threat to any investor money in this space. KNOW. YOUR. EXCHANGE.

There is a difference between Bittrex, Poloniex, Coinbase, Kraken, Gemini and several other lesser-known exchanges. They are not the same. The prices of your crypto on the exchanges are different, the rules and regulations they follow are different, the security is different and the quality of leadership is different.

How each exchange handles challenges and adversity is different. I’m not here to endorse any of the different exchanges, but I can tell you that each one secures customer assets, handles customer issues and provides support differently. Some are akin to legitimate banks; others are more like Bernie Madoff, with the appearance of sophistication and wealth while in reality, they are just common thieves and fraudsters.

What happens when a flash crash occurs and clients lose money? What happens when that flash crash only occurs on one exchange but not others? What happens when that exchange happens to provide customers with margin trading like a traditional investment house but denies that those rules apply to them? What law applies and what government agencies have the power to enforce the theoretical laws that apply? When catastrophe strikes, what happens?

Some exchanges respond to catastrophic events by refunding their customer accounts, other exchanges tell customers they’re #@$% out of luck.

While the latter might be good for my business – because wrongfully imposed customer losses are where lawsuits are usually born – that’s not good for the consumer.

If you have ever heard me speak on this topic, you know I am a passionate believer that regulation is coming and that it’s going to come hard and fast in the U.S.

Point of failure

That day of reckoning will collapse the weaker exchanges. Which exchanges will survive? Typically, those with the best leadership and that operate with transparency will rise to the top. As for those that fail?

Good luck collecting on your losses if you had entrusted your crypto to one of those exchanges. It’s expensive, time consuming and you never know how it will turn out.

As for which ICOs are viable and which ones are not, the ability to pick a winner might be a bit easier.

The answer there is: None of them have yet proven themselves to be winners; and any of them that look like winners might not in the near future once Uncle Sam and his relatives around the world wrap their hands around ICOs and crypto-related investments.

While I believe that more people are going to join the bitcoin and cryptocurrency parade, regulation and government intervention are going to change all the rules. I have been caught on camera advising crypto companies to get a 100 percent guarantee of free legal defense fees if their companies relied on legal advice at $1,000+/hour and that advice turns out to be flat wrong.

Some of my lawsuits and the lawsuits of others will demonstrate that the fallacies that some of these companies are promoting flagrantly violate of the law. There has yet to be an ICO that did not perform that was not a security.

There, I said it. I’m sure that lost in the flood of investment opportunities is the next potential Amazon or Netflix, but for now, the safety of more traditional investments is the right choice for most people.

I find it odd and incredibly ironic that the self-proclaimed thought leaders on regulatory advice at the largest law firms charging the most per hour are the same lawyers telling media outlets that people should only invest in a crypto company an amount they can afford to lose.

That’s terrible legal advice and terrible investment advice.

My outlook

In the crypto Wonderland, an educated consumer is the best consumer.

To be clear, just because my firm is involved in litigation against an exchange or a company that raised funds via an ICO does not mean that exchange or ICO won’t survive or isn’t legitimate.

To paraphrase the fictional character Amy Gardner on the TV show “The West Wing”:

“I’ve been crazy about [crypto] for longer than you’ve known [about it]. And I’ll keep poking [it] with a stick. That’s how I show my love.”

I show my love to protect my clients who were early adopters in this space and have been blown out of it by companies who believe they are above the law. I hold companies accountable as they grow and scale, and I’ll keep poking those companies with my lawsuits. That does not mean I love those companies or crypto any less. As these companies grow, scale, and legitimize in the U.S., they will learn that with responsibility comes accountability.

What you say and what you do matters. If you don’t believe that, either the government or a process server with a Complaint from Silver Miller is headed your way.

The upcoming year is going to be a wild ride for this space.

At FinTech 2017 in Washington, D.C., some people even claimed that 2018 is going to be “The Year of Crypto Litigation.” They’re probably right. However, if there is litigation, that means people have lost their money. That’s not good for crypto consumers or crypto businesses. I hope 2018 is the year of transparency and serviceable regulation.

A pinch here and a pinch there, not too little and certainly not too much. While many of my clients began as anarchists- and libertarians-at-heart, their focus changed when bad actors did bad things to them.

When someone steals your money and you lose that which you believe belongs to you, you seek justice.

In the U.S., justice requires law and order. In one of my cases, we had to get a federal court judge to order the return to my clients of 11,000+ stolen bitcoin, presently valued at over $150 million. When my clients had their bitcoin stolen from them, they stopped caring so much about decentralization and autonomous and anonymous transactions.

At that point, they simply cared about their missing cryptocurrency.

And in an ironic twist of fate, the person who helped my clients regain their faith in the non-governmentally-regulated world of cryptocurrency was… a government officer with a robe and a gavel. Maybe some government intervention into the crypto Wonderland isn’t so bad after all.

Internet crime image via Shutterstock

The leader in blockchain news, CoinDesk strives to offer an open platform for dialogue and discussion on all things blockchain by encouraging contributed articles. As such, the opinions expressed in this article are the author’s own and do not necessarily reflect the view of CoinDesk.

For more details on how you can submit an opinion or analysis article, view our Editorial Collaboration Guide or email news@coindesk.com.

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Class-Action Suit Targets ICO Promoted By Floyd Mayweather, Jr.

An initial coin offering (ICO) promoted by boxing champion Floyd Mayweather, Jr., is at the center of a newly filed class-action complaint.

Dated Dec. 13, the lawsuit names Sohrab Sharma, Raymond Trapani, Robert Farkas and William Hagner, as well as Centra Tech, Inc., as defendants, accusing them of violating U.S. securities law through a token sale that ultimately raised $30 million for the development of a cryptocurrency-focused debit card.

The filing comes more than a month after two of the firm’s founders left the startup. According to an Oct. 31 blog post from Centra, both Sharm and Trapani exited the project following the sale’s completion, as well as a profile of them and the ICO by The New York Times.

In the complaint, lawyers for the plaintiff alleged that the Centra sale constituted an unregistered offering and sale of securities.

They wrote:

“…in connection with Centra Initial Coin Offering (the “Centra ICO”), Defendants raised over $30 million in digital cryptocurrencies by offering and selling unregistered securities in direct violation of the Securities Act.”

The complaint also accused the defendants of misleading investors about the nature of its relationship with card networks Visa and Mastercard, as well as listing fake team members on its website.

The Centra ICO was notably promoted by Mayweather as well as music producer DJ Khaled – one of a number of examples of celebrity-endorsed token sales. The original posts by Mayweather on Instagram and Facebook that promoted the sale appear to have been deleted, and a post on Instagram by DJ Khaled is also unavailable as of press time.

Jacob Zowie, the plaintiff, is being represented by Komlossy Law and Levi & Korinsky LLP in the suit. Centra Tech and a representative for Mayweather did not immediately respond to a request for comment.

A full copy of the class-action complaint can be found below:

367102541 Rensel v Centra Tech Inc Etal 1 17 Cv 24500 JLK S D Fla Dec 13 2017 Class Action Complaint by CoinDesk on Scribd

Image Credit: Funtap / Shutterstock.com

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Tezos Founders Hit With Second Class Action Suit

For the second time in less than three weeks, a lawsuit has been filed against the founders of the Tezos project.

Pursued in the U.S. District Court in Florida, the suit alleges Tezos founders Arthur and Kathleen Breitman deceptively sold unregistered securities in violation of both federal and state law when they raised $232 million in an initial coin offering (ICO) in July.

The filing names the husband-and-wife pair, the Tezos Foundation and Dynamic Ledger Solutions – the Delaware-based company that holds Tezos’s intellectual property – as defendants. Further, it accuses them of fraudulently and deceptively marketing the sale of the platform’s native token “Tezzies” as charitable contributions and then pocketing “tens of millions of dollars” for themselves.

“Notwithstanding the defendants’ attempts to avoid governmental and private scrutiny, it is clear that the financiers were indeed profit-seeking investors in a security and that Defendants promoted and conducted an unregistered offering of securities, not a charitable fundraiser,” the complaint reads.

It continues:

“[D]ue to the many misrepresentations, factual omissions and unlawful activities engaged in by the defendants – it appears [participants in the ICO] cannot, and potentially will not, see any return on their investments.”

The news marks the latest development in the ongoing controversy over the project, which broke into the public view earlier this month when the Breitmans accused Johann Gevers, the head of the Tezos Foundation (created to support development of the project), of self-dealing. Gevers, in turn, alleged that the Breitmans were seeking to usurp control of the non-profit foundation.

The new complaint filed by David Silver, a partner at SilverMiller in south Florida, echoes and expands upon allegations laid out in a separate class action suit filed in California on Oct. 25, which came just days after the dispute between the Breitmans and Gevers went public.

The Breitmans and their attorneys have denied any wrongdoing and have signaled that they will aggressively fight back against such lawsuits.

Scales of Justice image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Tezos Founders Sued for Securities Fraud in Potential Class Action

A lawsuit seeking class action status has been filed in California against the founders and promoters of the controversial Tezos blockchain project.

The lawsuit represents the latest twist in the ongoing spat between Tezos founders Kathleen and Arthur Breitman and Johann Gevers, the head of the Tezos Foundation, a non-profit created to promote and support development of the project. The Breitmans accused Gevers of self-dealing, with Gevers alleging in turn that the Breitmans were seeking to assassinate his character and attempting to usurp control of the foundation.

That internal power struggle broke into public view earlier this month, stoking criticism of the project and raising questions about when the Tezos network would go live. It came months after the project raised a record $232 million in a token sale – the proceeds of which are now part of the dispute. The tokens have yet to be issued.

Submitted on Oct. 25 in the San Francisco branch of the Superior Court of California, the lawsuit names multiple defendants, including the Breitmans and Gevers.

Dynamic Ledger Solutions, Inc., a Delaware-based company owned by the Breitmans, the Tezos Foundation, and Strange Brew Strategies, a public relations firm that promoted the project ahead of its ICO, are also named as defendants.

The suit, filed by San Diego-based law firm Taylor-Copeland Law on behalf of plaintiff and Tezos ICO contributor Andrew Baker, alleges that the defendants violated U.S. securities law through the token sale. Specifically, the defendants are being accused of selling unregistered securities, committing securities fraud, false advertising and unfair competition (“by making material misrepresentations and omissions”).

When reached for comment, Baker Marquart attorney Brian Klein, who is representing the Breitmans, said that that his clients planned to “aggressively” fight the lawsuit.

“This lawsuit is without merit for a host of reasons. Kathleen and Arthur Breitman, who are brilliant entrepreneurs and visionaries, are going to aggressively defend themselves. They should never have been sued,” Klein told CoinDesk.

“As a general matter, the Foundation does not comment on potential litigation,” Gevers said when contacted by email.

Strange Brew Strategies declined to comment when reached.

‘Mess’ ahead?

How the lawsuit shakes out – including whether it receives a class-action certification – remains to be seen, given the early stages of the case.

Even still, observers like Anderson Kill lawyer Stephen Palley say that the lawsuit could drag on regardless of the long-term fortunes of the Tezos network itself. The allegation that state securities laws (not just federal ones) were violated represents “a significant area of risk for ICO promoters” in general, Palley said.

Palley also suggested that the lawsuit may not be the only one filed in relation to the controversy, speculating that “copycat” litigation could emerge as time goes on.

“In short, it’s a complicated mess. I doubt that it will be resolved quickly, even if tokens are issued quickly. It is unclear what impact that this will have on Tezos’ development,” Palley told CoinDesk, adding:

“It’s definitely not a great development for a new venture.”

The full court filing can be found below:

Tezo s Filing by CoinDesk on Scribd

Justice scales image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.