Solana Labs is the latest cryptocurrency company to be hit by a lawsuit accusing it of promoting an unregistered security..
The class action lawsuit was filed on July 1 by Roche Freedman LLP and Schneider Wallace Cottrell Konecky in the Northern District Court of California on behalf of plaintiff Mark Young, a resident of California..
The lawsuit accuses Solana Labs, the Solana Foundation, Anatoly Yakovenko, Multicoin Capital Management, Kyle Samani, and FalconX of selling unregistered security tokens in the form of Solana (SOL) since March 24, 2020.:
“Defendants made huge profits through the sale of SOL securities to retail investors in the United States in violation of the registration provisions of federal and state securities laws, and investors have suffered huge losses.”
The plaintiff brings the action on behalf of himself and other SOL investors, alleging that Solana Labs made “deliberately misleading statements” about the total outstanding supply of SOL tokens.
According to the lawsuit, the founder of Solana Labs, Anatoly Yakovenko lent a market maker more than 11.3 million tokens in April 2020 and did not disclose this information to the public. The company stated that it would reduce the supply by this amount, but only burned 3.3 million tokens, according to the lawsuit..
The plaintiffs were also uncomfortable with Solana’s claims to be decentralized. “As of May 2021, insiders held 48% of the SOL supply. Therefore, the network is highly centralized,” she added.
The outcome of the lawsuit could have significant implications for Solana and the cryptocurrency industry in general. SOL could be delisted from major cryptocurrency exchanges if a court deems it a security. Coinbase and Kraken delisted Ripple (XRP) at the end of 2020 following the SEC lawsuit against Ripple, which will soon conclude.
The lawsuit adds to the ongoing reliability problems of Solana, whose network has suffered at least seven total or partial outages in the last 12 months. These outages are mentioned in the lawsuit, and are said to have caused “great losses to network users” as they have caused SOL’s business value to drop dramatically.
SOL prices have plunged 85% from their Nov 6 all-time high of $260, and are currently trading at just under $40according to CoinGecko.
Solana Labs and Multicoin Capital were contacted for comment and opinion on the situation, but they had not responded at the time of publication.
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