Categories: Crypto NewsNews

Solana (SOL) faces a class-action lawsuit for being a ‘centralized,’ ‘security’

Published by
Nonhlanhla P Dube

Blockchain  Layer 1 Solana (SOL) is facing a class-action lawsuit in California filed by Mark Young, a token investor.

The Solana Foundation, Anatoly Yakovenko, Solana Labs, Multicoin Capital, and FalconX benefited from the sale of an unregistered security, according to the court petition.

Mark Young purchased SOL in August and September 2021 but quickly discovered that the token was unregistered security, resulting in massive losses for retail investors in the United States.

SOL sales benefited the founder and his partners

According to the lawsuit, the defendants, such as Multicoin Capital, pushed the tokens after purchasing them for R6.77 in 2019 and profitably sold millions of SOL to retail investors. Multicoin Capital is accused of dumping SOL tokens using FalconX. During the crypto market’s bull run, Solana reached a high of R4368 in November 2021. According to the lawsuit, this was made possible by the defendants’ actions, and they gained from the large increase in value while the typical investor lost money.

Solana’s decentralization claims are being questioned

The 40-page lawsuit also contested Solana’s claim of decentralization.

According to Young, insiders own % of SOL’s entire supply as of May 2021, while the Solana Foundation owns 13 %, making it exceedingly centralized.

“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.”

Furthermore, the lawsuit claimed that Solana’s frequent network disruptions demonstrated that it is centralized. It stated:

“The defendants and their engineers unilaterally shut the entire Solana blockchain off for hours to address this issue.”

Statements that are deceptive

The lawsuit also called out several of Solana’s “misleading remarks.”

Solana Labs founder Anatoly Yakovenko, for example, stated that the Foundation has agreed to lend 11.4 million SOL tokens to a market maker in 2020.

According to the lawsuit, the Foundation pledged to remove the 11.4 million tokens from circulation within 30 days. However, Solana only deleted 3.3 million tokens in the end.

According to the lawsuit, Solana will fail the “Howey Test.”

The Howey test is used to determine whether a transaction constitutes a “investment contract,” and the Securities and Exchange Commission (SEC) frequently uses it to evaluate such deals.

According to Investopedia, an investment contract arises in a business when earnings are expected 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. Roche Freedman LLP is suing Binance.US for marketing Terra’s UST and LUNA tokens.

Solana had not reacted to the case as of publication time.

What does this mean for other cryptocurrencies?

One of the most pressing concerns in the crypto sector is establishing whether or not an asset is a security.

According to SEC Chairman Gary Gensler, the bulk of cryptocurrencies on the market might be categorized as securities.

The sole exception, according to Gensler, is Bitcoin (BTC).

The SEC is now investigating Ripple (XRP) for selling unregistered securities. The outcome of this case could have ramifications for other cryptocurrencies as well.

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Nonhlanhla P Dube

Nonhlanhla P Dube is a senior news reporter at Rateweb. Nonhlanhla is a student of International Relations at the University of South Africa. She reports primarily on personal finance and economics. You can contact her directly by email at nonhlanhla@rateweb.co.za

Published by
Nonhlanhla P Dube
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