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Ripple Scores Small Win Against Investors Claiming XRP Is a Security

Ripple’s efforts to consolidate the lawsuits filed against it are proceeding successfully.

As previously reported by CoinDesk, Ripple Labs, which has been sued by a number of parties claiming that the XRP token is a security for the company, has been pushing to have the various class action lawsuits against it combined, or at least coordinated, to limit the number of cases it fights at once.

And Wednesday, a California Superior Court suit filed by investor David Oconer was formally designated as “complex litigation” – meaning it will now be coordinated with the remaining suits.

According to public filings, this follows another California case, filed by investor Vladi Zakinov, which has already been deemed complex as of June 2018.

Under California court rules, one of the requirements for a complex designation is that a case involves “securities claims or investment losses involving many parties.” With the new designation, a single judge should oversee actions relating to the case to prevent duplicated efforts and potentially different results due to different cases.

However, one result of the Oconer action is the case is now assigned to Judge Marie Weiner, who Ripple successfully moved to disqualify from presiding over the Zakinov case. It is unclear whether Ripple will again move to have the judge disqualified from the new preceding.

Ripple filed to coordinate the Zakinov and Oconer lawsuits earlier this month, claiming that the two class actions concern “‘all or a material part of the same subject matter’ and involve ‘all or substantially all of the same parties.'”

Another related class-action lawsuit, filed by investor Ryan Coffey, was voluntarily dismissed by the investor last week. That case was moved to the District Court of the Northern District of California by Ripple, though Coffey tried to move it back to a lower court. His voluntary dismissal comes after that effort was rejected.

Legal counsel for Coffey, Oconer and Ripple did not respond to requests for comment by press time.

XRP token on bullseye image via Shutterstock

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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.

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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

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US Judge Delays Crypto Fraud Ruling Pending CFTC Response

A federal judge has postponed any decision on a crypto fraud case brought by the Commodity Futures Trading Commission (CFTC) against alleged scammer Patrick McDonnell.

Judge Jack Weinstein of the Eastern District of New York wrote in a court order Thursday that the CFTC must file “proposed findings of fact, conclusions of law, and [a] post-trial brief” by July 27.

In particular, Weinstein wants the commission’s lawyers to support how they calculated damages and civil monetary penalties. Once that is filed, McDonnell will have two weeks to respond. A hearing on the matter will occur on Aug. 23.

McDonnell is accused of defrauding investors of $457,393 through a crypto trading advisory service called Coin Drop Markets and the affiliated CabbageTech Corp, according to charges filed by the CFTC in January.

During the course of the hearing, multiple witnesses claimed that they had sent McDonnell thousands of dollars in both fiat and crypto, but did not see any promised returns.

The case has already resulted in one landmark ruling that cryptocurrencies are commodities, and therefore may fall under the jurisdiction of the CFTC. However, in his preliminary injunction, Weinstein raised questions about the agency’s jurisdiction over the case, which the agency sought to answer during this week’s hearing.

And, despite the charges, McDonnell’s defense focused more on whether the CFTC has the jurisdiction to regulate his business than on refuting its arguments. Indeed, on Monday he argued that the statute being cited was not created for “just straight fraud. It was created for fraud with market manipulation, specifically.”

He told CoinDesk that he did not want to be distracted by the charges, preferring to look at the jurisdictional question.

McDonnell explained:

“I really haven’t [focused on the charges] because their argument is irrelevant … if I walked over and shot a guy in the head, we all know I murdered that guy, but in terms of how I’m being charged under statutory law … Why sit there and get caught up in their fairy tale and their book of fiction?”

The ruling has already been cited in another case earlier this year, when lawyers for Maksim Zaslavskiy claimed that the U.S. government can’t claim cryptocurrencies are commodities and securities at the same time. They pointed to Weinstein’s ruling as evidence that a cryptocurrency is a commodity, not a security.

Zaslavisky is being sued for securities law violations by the U.S. Securities and Exchange Commission. His case will proceed to a jury trial early next year, when the court will decide whether or not his companies – RECoin and DRCW – were selling unregistered securities.

New York courthouse image by Shutterstock

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SEC Settles Trader Lawsuit Tied to Blockchain Firm Stock Sales

The U.S. Securities and Exchange Commission (SEC) has settled with two Nevada men over charges that they illegally profited from sales of stock in a claimed blockchain company, according to an SEC release.

The SEC originally alleged on July 2 that attorney T.J. Jesky and his law firm’s business affairs manager Mark DeStefano had allegedly made about $1.4 million by selling stock shares in UBI Blockchain Internet, a Hong Kong-based firm, between Dec. 26, 2017 and Jan. 5, 2018.

As CoinDesk reported at the time, the two Nevada men allegedly sold 72,000 restricted shares at prices ranging from $21.12 to about $50, even though the shares were supposed to be sold at the fixed price of $3.70, as stated in the registration statement.

Sales of UBI Blockchain’s stock then ceased as the SEC suspended trading activities on Jan. 5, due to questions regarding the company’s public filings and unusual market activities around its stock, including a price spike.

“Without admitting or denying” the accusations in the SEC’s complaint, Jesky and DeStefano have now agreed in a New York District court to settle the case by returning $1.4 million of the allegedly illegal earnings and a $188,682 civil penalty. They have also agreed to “be subject to permanent injunctions” on future stock trading.

According to the SEC notice, the investigation is still ongoing.

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The SEC Just Froze One ICO's Accounts for a Second Time

The U.S. Securities and Exchange Commission (SEC) is once again taking action against a co-founder of the PlexCoin cryptocurrency project, having previously sued him over securities violations and fraud in 2017.

On June 15, the SEC obtained an emergency court order – unsealed on June 18 – to freeze the assets of Dominic Lacroix, who the agency called “a recidivist Quebec securities law violator” over his previous attempt to launch a token sale, or initial coin offering (ICO) – one officials have declared a “full-fledged cyber scam.”

Last December, Lacroix, the project’s other co-founder Sabrina Paradis-Royer and their firm PlexCorp, were sued for securities fraud and had their assets frozen in a similar emergency order. Now, the SEC has obtained another court order following new evidence of illegal action on the part of Lacroix.

As previously reported by CoinDesk, PlexCorp was believed to have raised $15 million from thousands of investors through the ICO, of which the SEC said $810,000 was deposited with payment processor Stripe. However, an unknown amount was thought to remain in cryptocurrency wallets controlled by the firm.

According to an SEC litigation release dated Wednesday, the latest request for an asset order – filed at a federal court in New York City – alleges additional wrongdoing since the previous freeze.

The agency said:

“Lacroix had been using secret accounts, including an account in his brother’s name but which he controlled, to improperly dissipate for personal use digital assets obtained from investors during the PlexCoin Initial Coin Offering.”

Aside from the SEC’s 2017 actions against the project and its founders, a Canadian court ordered a two-month jail sentence against Lacroix and $100,000 in fines against his company for contempt of court.

In today’s release, the SEC said it is also seeking an officer-and-director bar for Lacroix and a bar from offering digital securities against both Lacroix and Paradis-Royer.

Ice cubes image via Shuttersock

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Crypto Tycoons Spar Over Alleged 30,000 Bitcoin Debt

A Chinese entrepreneur who recently made headlines by announcing his plan for a blockchain “Uber”, may have got himself in legal hot water over his claims about a bitcoin tycoon, also from China.

Chen Weixing notably made a number of accusations in a WeChat post on June 9, taking aim at Li Xiaolai, a successful Chinese cryptocurrency investor and an early bitcoin evangelist in the country.

In his post, Chen most notably claimed that Li had raised a fund of 30,000 bitcoins in 2013 that was to mature in September 2017, yet Li pushed back the deadline to September of this year.

The reason, Chen alleged, was that Li had spent all the raised bitcoins on Just-Dice, a bitcoin gambling site.

“Everyone who’s been in blockchain industry long enough knows this. I’m not lying,” Chen wrote.

Having offered no proof to back his claim, Chen’s accusation of a 30,000 BTC debt – an amount worth nearly $200 million at press time – immediately stirred up heated discussion in the Chinese crypto community.

As the allegation emerged, Li originally said he did not care to comment on the accusation and it was Chen’s responsibility to present evidence to back up his claim.

Yet, on Wednesday, Chen took another shot at Li, publishing another WeChat post with 11 further allegations against Li, which also accused him of luring retail investors during the bull market in order to liquidate his profits.

Following that, on Thursday, Li published an article in which he denied all of Chen’s accusations, providing individual responses to each.

In explaining the 30,000 BTC debt claim, Li wrote:

“Once again, it’s not true. The fund was a private equity ‘equivalent to 20 million yuan ($3 million).’ And I never promised to guarantee the fund’s value using bitcoin. My quote was ‘We hope (this fund) can outrun the bitcoin market.’ As for the ‘due in September’ part, the fund was set up in a ‘4+1’ model, so it ought to due in September this year. Chen is just muddying the water.”

Li went further, saying that Chen has no evidence to back up the claims, which are “blunt defamation.”

In a response to CoinDesk, Li said he is “definitely” mulling the option of taking proper legal measures against Chen.

Chen has not yet publically responded to Li’s article and could not be reached by CoinDesk for comment.

This isn’t the first time Chen has sparked controversy in the cryptocurrency community with contentious remarks.

Earlier this year, Zhu Xiaohu, a notable Chinese investor and managing director at GSR Ventures Management, openly said he does not want to be involved in any blockchain-themed WeChat group discussions, because he wanted to “maintain his integrity.”

Responding to that, Chen said:

“Zhu just wants to die in the old world but I want to live in the new world to come. … He doesn’t event care to keep learning. He’s also killing the innovation of a group of passionate young people while pretending to maintain that integrity of his.”

Bitcoins 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.