Solana network developer, founder and partners have been accused of profiting from the sale of unregistered securities.
Solana hit by class action law
Series 1 blockchain Solana (SOL) is facing class action law in California. This was submitted by Mark Young, an investor in the token.
According to the court filing, the Solana Foundation, Anatoly Yakovenko, Solana Labs, Multicoin Capital and FalconX seized the sale of unregistered securities.
Mark Young bought SOL between August and September 2021, but soon discovered that the token was an unregistered security, resulting in huge losses for retail investors in the United States.
Founders and partners benefited from the sale of SOL
The lawyers allege that the defendants (like Multicoin Capital) bought the tokens in 2019 for $ 0.4, then promoted them and subsequently sold millions of them to retail investors for a profit. FalconX has been accused of facilitating SOL token dumping at Multicoin Capital.
Solana peaked at $ 258 in November 2021 during the bull run of the crypto market. By law, this was possible through the efforts of the defendants. They took advantage of the huge rise in value and the average investor lost out.
How decentralized is Solana really?
The 40 – page law also challenges claims that Solana is decentralized.
According to Young, as of May 2021, 48% of Solana’s total offer was insider. The Solana Foundation, on the other hand, held 13%, making it highly centralized.
“Because Solana Labs and its insider directly control more than 50% of the total SOL supply, the core value of SOL depends primarily on the efforts of the Defendants.”
The law also states that Solana’s frequent network outages indicate that the company is centralized:
“Defendants and their engineers closed the entire Solana blockchain unilaterally for hours to resolve this issue.”
Lawyers also address some of the “misleading statements” made against Solana.
So Solana Labs founder Anatoly Yakovenko said the foundation decided to lend 11.4 million SOL tokens to a market maker in 2020.
The law also states that the foundation promised to withdraw the 11.4 million tokens from circulation within 30 days. Eventually, however, Solana exited only 3.3 million tokens.
Lawsuit says Solana will fail “Howey Test”
The lawyers have alleged that SOL is a security for the purposes of the Howey test. Howey’s test is used to determine whether a transaction is an “investment contract”. It is commonly used by the Securities and Exchange Commission (SEC) to evaluate such transactions.
According to Investopedia, a company has an investment contract where it expects gains from the efforts of others.
The complaint states:
“Buyers who have purchased SOL securities or provided valuable services to a joint venture, Solana, have invested money. These buyers have a reasonable prospect of profit based on the efforts of the promoters, Solana Labs and the Solana Foundation, to build a blockchain network that competes with Bitcoin and Ethereum and provides an acceptance framework for blockchain transactions. ”
Young is represented by Roche Freedman LLP and Schneider Wallace Cottrell Konecky. Roche Freedman LLP takes legal action against Binance.US to promote Terra’s UST and LUNA.
At the time of writing, Solana has yet to respond to the law.
What does this mean for other altcoins?
One of the most important questions in the crypto industry is to determine whether or not an asset is a security.
SEC Chairman Gary Gensler said most of the cryptocurrencies on the market could be classified as securities.
Gensler clarifies that Bitcoin (BTC) is the only exception to this.
The SEC is currently in legal action against Ripple (XRP) for the sale of unregistered securities. The verdict in this case could determine the fate of other altcoins.
Text credit: Cryptoslate
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