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Mark Young, a token investor, has launched a class-action lawsuit in California against Solana (SOL). According to the court petition, Solana Foundation, Anatoly Yakovenko, Solana Labs, Multicoin Capital, and FalconX benefitted from the sale of an unregistered security.
Mark Young purchased SOL in August and September 2021 but quickly recognized that the token was unregistered security, resulting in massive losses for regular investors in the United States.
The complaint said that the defendants, including Multicoin Capital, marketed the tokens after purchasing them for $0.4 in 2019 and sold millions of SOL at a profit to retail investors. FalconX is accused of enabling Multicoin Capital's sale of SOL tokens.
Solana peaked at $258 in November 2021, amid the crypto market bull run. According to the case, this was made possible by the defendants, who benefitted from the significant increase in value while the typical investor suffered losses.
The 40-page complaint also contested Solana’s alleged decentralization.
Young said that as of May 2021, insiders had 48 percent of SOL’s entire supply, while the Solana Foundation held 13 percent, making it highly concentrated.
“Because Solana Labs and its insiders directly control more than 50% of the total SOL supply significantly, the underlying value of SOL depends primarily on the efforts taken by Defendants.”
Additionally, the lawsuit claimed that Solana’s centralized nature was demonstrated by its frequent network disruptions. It said:
“The defendants and their engineers unilaterally shut the entire Solana blockchain off for hours to address this issue.”
The complaint also highlighted some of Solana’s allegedly “misleading statements.”
Anatoly Yakovenko, the creator of Solana Labs, stated that the Foundation agreed to lend 11,4 million SOL tokens to a market maker in 2020.
The complaint added that the Foundation pledged to remove the 11,400,000 tokens from circulation within thirty days. However, Solana finally deleted just 3,3 million tokens.
According to the lawsuit, SOL is a security under the Howey test.
The Howey test is used to establish whether a transaction constitutes an “investment contract,” and the Securities and Exchange Commission (SEC) frequently uses it when evaluating such deals.
According to Investopedia, an investment contract arises in a business when gains are anticipated from the efforts of others.
According to the lawsuit, “Purchasers who bought SOL securities have invested money or given valuable services to a common enterprise, Solana. These purchasers have a reasonable expectation of profit based upon the efforts of the promoters, Solana Labs and the Solana Foundation, to build a blockchain network that will rival Bitcoin and Ethereum and become the accepted framework for transactions on the blockchain.”
Roche Freedman LLP and Schneider Wallace Cottrell Konecky represent Young. For promoting Terra’s UST and LUNA, Roche Freedman LLP seeks legal action against Binance.US.
At the time of publication, Solana has not yet responded to the complaint.
Identifying whether a given asset is a security or not is one of the crypto industry’s most pressing concerns.
Gary Gensler, the head of the SEC, has stated that the bulk of cryptocurrencies on the market might be classed as securities.
Gensler underlined that Bitcoin is the lone exception to this rule (BTC).
The SEC is now litigating against Ripple (XRP) over the sale of unregistered securities. This case’s verdict might affect the destiny of other alternative cryptocurrencies.
