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Tezos Founders Hit With Class-Action Lawsuit

Last Updated March 4, 2021 5:01 PM
Josiah Wilmoth
Last Updated March 4, 2021 5:01 PM

A disgruntled initial coin offering (ICO) participant has filed a class action lawsuit against the founders and promoters of the $232 million Tezos blockchain project.

The lawsuit [PDF ], which was filed in the San Francisco County branch of the California Superior Court, follows an explosive investigative report that revealed infighting between Tezos founders Kathleen and Arthur Breitman and Johann Gevers, the head of the Tezos foundation, the organization that oversaw the project’s $232 million ICO and maintains control of those funds.

The Breitmans accuse Gevers of self-dealing, while Gevers accuses the Breitmans of attempting to exert undue control over the operations of the foundation. Against this backdrop, development of the Tezos blockchain has lagged behind stated targets, and the price of Tezos futures has dropped considerably on cryptocurrency exchanges. Now, one crowdsale participant is accusing both sides of committing securities fraud.

The plaintiff in the case is Andrew Baker, who contributed one bitcoin to the Tezos ICO. He is represented by legal firm Taylor-Copeland.  The suit names as defendants the Breitmans and their company – Dynamic Ledger Solutions – as well as Johann Gevers and the Tezos Foundation. It further names public relations firm Strange Brew Strategies, which promoted Tezos ahead of its ICO.

The suit claims that Strang Brew Strategies made misleading statements about the status of Tezos development leading up to the ICO, including telling news organizations that companies such as Ernst & Young, Deloitte, and LexiFi had adopted Tezos in their development labs. The firms, however, claim that although they are considering the project’s technology as a potential blockchain solution, they have not implemented it.

Similarly, the suit accuses the founders of misleading potential token buyers about the time it would take to complete the development of and launch the blockchain. It further claims that these statements are not covered by the “safe harbor” provision for forward-looking statements since they were not specifically identified as such when made.

The suit also claims that, despite Tezos’ assertions to the contrary, ICO contributions were investments – not donations. Consequently, the suit alleges that the ICO constitutes a securities offering under U.S. federal law and that the crowdsale violated securities regulations.

If the lawsuit succeeds, it could have serious implications, both for Tezos and token distribution events in general. However, Brian Klein, attorney for the Breitmans, told Reuters  that the lawsuit “is without merit” and that they intend to ‘aggressively defend themselves.” Some legal analysts agree, stating that the lawsuit is unlikely to succeed since the crowdsale had barred U.S. residents from participating in the sale and Baker would have had to misrepresent his nationality in order to contribute.