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By Jamie Redman – |
Research Paper Says Issuers of ICO Tokens Will Face Class Action Lawsuits
This month a law firm called Polsinelli LLP published a study called “Cryptocurrency Class Action Lawsuits: A New Frontier” which explains that initial coin offerings (ICO) will spark a large number of litigation proceedings against cryptocurrency projects and businesses.
‘ICOs May Be Fodder for Lawsuits’
A group of researchers from the law firm Polsinelli LLP published a paper that claims lawsuits surrounding ICO projects will likely grow exponentially in the future. Polsinelli researchers Michael Foster, Mark Olthoff, and Richard Levin explain that bitcoin and ethereum are often used to raise money for ICO projects. ICOs have raised billions of dollars over the past year but have come under scrutiny from regulators for fraudulent behavior and often failing to produce anything of value. “These ICOs, however, have spurred recent class action lawsuits,” the Polsinelli paper explains.
“Because anyone with an idea for a project can gain financial backing without going through the formalities of an IPO, there are obvious chances for the public to be scammed, leading to potential lawsuits,” the research emphasizes.
We believe it is highly likely other issuers of tokens will face class action lawsuits. Any company planning to conduct a token offering using an ICO should proceed with caution. Similarly, anyone looking to invest in a token offering should make sure the offering is conducted in compliance with applicable state and federal laws.
ICO Lawsuits Started Growing in Number Last Year
The law firm also details that several class action lawsuits have been filed against ICO projects near the end of 2017 and in early 2018. For instance, a lawsuit was filed against the Centra ICO in December, the ‘decentralized hedge fund’ Monkey Capital a week later, and two more filed against the companies Gigawatt, and ATB Coin. Throughout October and November 2017 four lawsuits were filed against the founders of the Tezos project and its ICO.
“The thread running through many ICO models is that they are often sold in a manner that may be contrary to state and federal securities laws,” the Polsinelli paper explains.
ICOs, therefore, may be fodder for lawsuits by investors alleging harm by being taken advantage of by the founders and the lack of regulatory oversight.
Other ICO Litigation Questions Need to Be Answered
The attorney’s say that there are a lot more questions to be answered rather than concentrating solely on ICOs that have failed. Polsinelli’s paper says that the public needs to know whether the tokens constitute securities, and whether material facts were misrepresented about the network. For instance, the terms and conditions of an ICO may not allow them to operate in the United States under current regulatory statutes.