Solana Gets Accused Of Being An Unregistered Security

July 7, 2022 1:51 pm

A class action lawsuit was just filed in the state of California where Solana was accused of being an unregistered security that benefitted insiders while retail investors suffered.

The token was also accused of being highly centralized and this lawsuit makes Solana similar to the likes of XRP which was also accused of being a security by the SEC.

The lawsuit was first filed in 2021 by a Californian resident that bought Solana, but the lawsuit has only recently started picking up steam.

This resident claims that SOL fits the definition of a security through the analysis of a Howey Test which is the common method that federal agencies use to determine if something is considered a security.

This same argument was also used against Ripple in the XRP lawsuit and speculators are wondering how SOL will do against this new accusation.

CoinDesk reports:

According to the complaint, Young alleges the way SOL was created and sold meets the three tenets of the Howey Test, a U.S. Supreme Court precedent commonly used as a barometer for whether the sale of something is a security or not.

“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,” the filing said, addressing the three forks of the Howey Test.

In the filing, Young pointed to several sales of the SOL token or agreements to sell the SOL token ahead of the public sale of the token.

As the crypto regulation industry is starting to seem to be more aggressive now during this bear market, it may be possible that more and more digital assets will start going through the same lawsuits like XRP and SOL.

Therefore, the results of these existing lawsuits are extremely critical for the rest of the crypto industry as it will likely lay the future foundation of regulation.

Solana Labs had also filed a Form D with the SEC which indicates that the sale of SOL was securities exempt from the SEC registration and that they were essentially selling the rights to SOL tokens.

However, it seems that unclear legal guidelines have still led the company to the lawsuit that it is now having to face.

Yahoo reports:

Solana Labs filed a Form D with the U.S. Securities and Exchange Commission (a filing saying the sale was of securities exempt from SEC registration), noting the company was selling “the future rights” to around 80 million SOL, according to the filing.

Multicoin, a major crypto venture capital firm that has invested heavily across the Solana ecosystem, “offloaded millions of dollars of SOL” onto retail after “relentlessly” promoting the token in spite of Solana blockchain’s tech issues, the suit alleged. This alleged offload passed through FalconX over-the-counter trading desks, the suit said.

Young’s law firm Roche Freedman also recently filed suit against Binance.US for allegedly misleading investors during the Terra implosion. A lawyer for Roche Freedman did not pick up the phone.

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