Dfinity Faces Class Action Lawsuit for Selling Unregistered Securities

Divya  |  Jul 23, 2021

A group of ICP (internet computer) investors have sued Dfinity for selling the token as an unregistered security. The complaint has been filed by California resident Daniel Ocampo and alleges that Dfinity violated the US Securities Act of 1933. Ocampo’s lawsuit represents everyone who “purchased Internet Computer Project tokens on or after May 10, 2021."

Lawsuit Claims Dfinity Sold Unregistered Securities

Along with Dfinity, the complaint targets crypto hedge fund Polychain Capital, venture capital firm Andreesen Horowitz and Dfinity’s founder Dominic Williams. Both Polychain and Andreesen Horowitz were major stakeholders of the Internet Computer.

The suit claims that Dfinity minted ICP tokens “out of thin air” and sold them to finance its operations and its partners without applying for the needed securities registration. It also referred to Howey’s test and alleged that Dfinity’s efforts including issuance and promotion of the ICP token and its listing on major exchanges were solely aimed at making profits.

Additionally, the complaint pointed out that the defendants have earned “massive profits” by selling the token without complying with the federal securities laws, in what is essentially an “ongoing initial coin offering.”

A Rare Case of Investor Backed Litigation

Usually, crypto firms and projects are called out for their regulatory violations by government agencies, with the Securities and Exchange Commission at the helm of such affairs. But Dfinity’s case is a rare instance of a crypto project facing investor-led legal scrutiny. And a look into its price action and volatility explains the reasons behind the current investor fury.

Dfinity’s blockchain platform was launched on May 10, following which the ICP token got listed on Coinbase Pro. The token was designed to help with governance and also for paying transaction fees and rewarding users for engaging with the network. But soon after the successful Genesis launch, the token’s value rapidly declined by nearly 95%, inviting criticism from the asset’s investors and crypto watchers. 

According to Arkham Intelligence, Dfinity insiders transferred around $2 billion in ICP tokens to crypto exchanges after the launch to cash out their value. The firm added that these transfers led to the token’s drop from $700 to below $50 within a few weeks.

Notably, some members of Dfinity’s Reddit community have also made similar allegations in their posts, which were later removed by the moderators.

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