Here we go... Lawsuit filed


#1

Who is this clown, Andrew Baker?

https://www.coindesk.com/tezos-founders-sued-securities-fraud-potential-class-action/

What’s amazing is that it was made very clear Tezos wasn’t expecting to be out until Dec 2017 at best, and with likely delays. What happens if by the time this gets to court that Tezos is out and trading at say twice or 3 times its ICO price in Bitcoin (never mind dollars). That would be funny cause then they would be reimbursed at the price paid at the ICO.


#2

It’s because of clowns like this that the general public in the US (you know, the “land of the free”) might be prevented to participate in future ICOs while the rest of the world can.


#3

The lawsuit is beyond a waste of time, it’s just a publicity stunt. Suing over a single btc? you have to be an idiot to take this seriously. Among all the issues with it are:
There was no promised date of launch, so how can they sue for a refund just after a few months?
The team is still planning to launch, so there is no provable damages. The only way there would be is if the team just came out and said forget it, we won’t ever launch it.
It was crystal clear that those participating were contributors to a non profit rather than buyers in a for profit project. There was also wording to the effect that there is no legal duty on their part to give tokens in return for the donations.
If some buyers are upset it’s your own GD fault for not taking the GD time to read the ico terms.


#4

I totally agree. Well stated.


#5

Don’t get me wrong, if Tezos were to die on the vine I would be extremely upset not only for the hopes I have for it’s potential, but for the loss of my btc that is skyrocketing in value. However, that’s crypto - it’s a gamble.


#6

I was an early investor in Ethereum. It took quite a while between the ICO and the launch to occur. When I invested in Ethereum ICO, I only invested a fraction of my holdings in Bitcoin. Of course, I wished I had done more… But then, if it had gone the other way, I would have wished I didn’t invest as much. :wink:
Just like you said, speculative bet.


#7

BTW, I would not be opposed if they reimbursed anyone who wanted their bitcoin back (by providing their keys to the foundation). In turn, the foundation “destroys” these future tezzies. (A partial reverse ICO). The value of Bitcoin going up means they have even more than the original $230M, and doing so would reduce the initial market cap of Tezos, increasing the upside potential for everybody else (the real investors who understood their responsibility).


#8

I’ve thought that was a fantastic idea for awhile now. Maybe after this disfuncional foundation situation is resolved they can do that prior to launch.


#9

Almost a year (10 months) for Ethereum between the ICO and the first release


#10

Interesting - it’s taking place across the street from where I work. I wonder if I can walk over and watch the public bits?

On the face of it it certainly seems like a honeypot attack. Someone just wants to dip their paws into some of that $230M.

I wouldn’t dismiss that 1BTC part - that’s just a token amount, so there’s context to wrangle over. It could be any amount.


#11

I just read the filing except for exhibit A. I think it’s weak and the lawyer is still wet behind the ears. Here’s his linkedin profile. James Q. Taylor-Copeland is his name.

https://www.linkedin.com/in/james-taylor-copeland-8b801615/


#12

Went through the complaint and here are my initial thoughts:

The securities claims are being made under federal law, not state law - so the Howey Test (federal securities precedent) and not Silent Hill (California State securities precedent) would be the guiding principle. (see http://bit.ly/2uw60Hd for a quick overview)

Under the Howey test, there are four elements that must be present for it to be a security. There is a clear (one may say, convincing) argument against two of those elements, and a potentially convincing case for a third.

1 - The “security” must have a clear expectation of profit: The Breitman’s have said over and over again that this is a “donation”… regardless of Tim Draper saying he “invested”… those who represented DLS and the Foundation said it was a donation. A reasonable person would NOT expect to profit from a donation.

2 - The “profit” must be solely from the efforts of others. IF there is a expectation of profit, it would come from the appreciation of the value of the token. IF the token appreciates in value it will be because of the fine work the ENTIRE COMMUNITY puts into it. As the token carry in them the means of their own governance - they must be leveraged (Aye, Nay, Abstain) for the network to improve in value, therefore, if someone has a token, they are participating in the network and, therefore, are contributing to the improvement of value.

3 - Slightly weaker is an attack against the existing paradigm of a “common enterprise” or “venture”. The core nature of a distributed ledger is that it is distributed, it is decentralized. Just as you can’t sue “the Internet” - you shouldn’t be able to sue a blockchain. (There are problems with this argument because (a) DLS is a corporation, (b) Tezos Foundation is a business entity, © we are all engaged in working to a common goal, a common enterprise, if you will, regardless of the lack of structure…)

The real threat of this claim is - actually - the false adverting one. Strange Brew stuck their foot in it when they claimed - rightly or wrongly - the list of companies that had “adopted” Tezos. There is always wiggle-room in how clients and customers can be claimed and there was plenty of space to be more circumspect. If the suit gets any traction at all it would be due to those claims. But there are ways to remediate that and there is - in no way - cause for a punitive award for a PR guy being too enthusiastic about his clients successes.

Here’s the thing - over and over again the complaint mentions the fact that Tezos raised $400M (which isn’t true… regardless of the current value) - which, to me, means this lawyer is angling for a settlement rather than an actual trial. After all, the defendant started investing in cryptocurrency in MARCH 2017 and he used 1 whole bitcoin for his tezos donation. Not some fraction thereof - one round bitcoin. Sounds unsophisticated - like a plant, or a civil action troll.

I see “opportunist” written all over this suit and I hope and pray the judge will throw it out.


#13

Thanks for this very interesting write up.

Indeed, it is not improbable that this guy invested in Tezos with the intention of doing a class action lawsuit afterwards at the moment there is a delay announced or anything negative. He was just waiting for something ugly.


#14

What if people who joined the lawsuit will get at least money they have invested in ICO and those who don’t will lose everything. That would be funny ))


#15

Attorneys in cases like this typically work on a contingency basis, so expect a third to be taken in the extremely unlikely event they win. Even if they win, they still need to collect, and that would be a very unlikely scenario considering the funds and foundation are in Switzerland. This is a publicity stunt, that or he is simply hoping for a quick settlement which isn’t going to happen.
The Tezos project is getting a lot of free publicity out of this, something to think about.


#16

sampharrison, one of the required elements of every civil case is you have to show damages. If the mainnet launches and the price does better than btc and eth ico prices before a trial would begin, I would think this to be a slam dunk defense. While the defense only has a few weeks to file an answer, the defense can stall for months before an actual trial were to begin.This would completely obliterate their fraud and resulting damages arguments.
What remains would be whether these are in fact securities rather than donations and what are the resulting penalties, which shouldn’t have anything to do with a class action suit which is rendered moot because they can’t show damages. This would be an issue between the SEC and the defendants. Thoughts?


#18

That is what is happening with Antshares/Neo. They will be refunding all contributions either in yuan or the dollar amount invested in ANS. I believe that is by dictate of Chinese government.


#19

A quote from the HELP section of tezos site FAQ: “When will Tezos first be listed on an exchange?
A few exchanges have expressed interest but there is no exact timeline for XTZ to become listed. XTZ will most likely begin listing when the Tezos network becomes active and changes in ownership can be recorded on the blockchain. The development team estimates that the time to completion is around 4 months, however, bear in mind this could take longer due to unforeseen events common in software development. The Tezos Foundation will not be able to allocate tokens until the network launches. If you are anxious about exchange listing dates, we suggest you do not contribute to the fundraiser and wait until such a listing happens”, end of quote

Do you mean that the above quoted section is in the white paper? I am sure that i read this part very clearly: “The development team estimates that the time to completion is around 4 months, however, bear in mind this could take longer due to unforeseen events common in software development”. BEAR IN MIND IT COULD TAKE LONGER, is it = 6 months or 8 months, or 1 year or more?
Which is exact?

And this part: “If you are anxious about exchange listing dates, we suggest you do not contribute to the fundraiser and wait until such a listing happens”.
Is it not clear that "if one cant be patient, one should refrain, desist, or turn away, from contributing?"
It clearly means all contributors to this project read, assimilated and understood the implications of the above stated quote, yet and out of trust contributed (donated) towards the success of the project despite the inherent risks of possible delays, “unforeseen events common in software development”, infighting, litigation etc.

From the same section i read: Quote: “What is the minimum contribution?
The minimum contribution is 0.1 BTC or its equivalent in other means”, end of quote.

If am permitted to say that non-English participants would have been in greater majority of violators of this minimum contribution rule, which will be understandable, however, i do submit that one should again exercise patience when it comes to ASKING FOR A REFUND for one’s deliberate fault or blunder, which isn’t that of the foundation or a fault of the founders. This though is a kind of savings haha!
(Am a contributor and not in any way connected with tezos project owners)


#20

It’s a good observation that civil cases require damages. Unfortunately - there are multiple different sorts of damages that could exist. In civil cases there are usually three sorts of damages: (a) Compensatory, (b) General, © Punitive.

Compensatory damages “make you whole”. In this case, it would be the “at that time” value of the bitcoin, so, what, roughly $2,000?

General damages would relate to lost opportunities or damages due to reliance on promises made. In this case, that one bitcoin would be valued at, what is it today, $7,000ish?

Punitive damages are awarded to prevent people from acting in the same way. This is usually where the big ticket lawsuits make headlines, the type of damages that sunk Gawker, etc. Fortunately, those are usually limited to about 9x the size of the compensatory and general damages. So - for this individual - MAYBE $70K.

From what I read in the the complaint, the plaintiff isn’t claiming that the lack of a mainnet was the source of fraud - it was that Strange Brew said that certain companies where already using the product - namely Deloitte and E&Y (both statements turned out to be quite the exaggeration).

If we allow for the fact that the plaintiff bought tezos in good faith, and if we believe that a “Reasonable Person” would trust a pr guys unvarnished hype machine in their “investment” (it’s not an investment, it’s a donation), then this one individual could claim some damages. The damages would belong in Small Claims court, but that is why they are looking for a class action lawsuit to get the Compensatory Damages above the required $10K minimum.

Regarding SEC vs Defendants. Unfortunately, Kathleen hit this right on the head when she had her interview with This Week In Start-ups. Each state in the US has their own Securities laws that need to be complied with AND they need to comply with the federal level Securities and Exchange Commision. It makes quite the regulatory burden for a small organization to do any sort of fundraising in the US. IF they were trying to raise money for a company and they wanted to have everyone in the US be able to participate - they would have to comply with the security regulations (also known as Blue Sky regulations) of each state - which is pretty much a nightware.

So - the take away is that if the Tezos Fundraiser is challenged as a security, they will have to fight the fight in 50 different states and against the SEC (all the cases would be rolled into one adjudication, but it still isn’t pretty).

NOTE: I should say - no one should take anything I write as legal advice.


#21

Interesting point. There is no bad publicity :slight_smile: and its true: everyone knows Tezos! Go live guys and rock!