Clearly, it’s not just operators of fraudulent token sales that could face legal action. As revealed yesterday, an investor unhappy with the performance of the UnikrnGold token (UKG) filed a lawsuit in Seattle on August 13 against Unikrn and the project’s creators for breaching securities regulations and is requesting a refund in Ether.
The lawsuit claims that Unikrn knowingly and intentionally marketed the tokens as “utility tokens” to bypass the Securities Act of 1933: between September and October 2017, Unikrn raised 112,720 ethers, worth approximately $31 million. This case is particularly notable because, in October 2017, Unikrn also secured an additional $16 million from accredited investors through a SAFT (Simple Agreement for Future Tokens).
The complaint shares several similarities with the accusations in the ENVION and TEZOS cases:
- The legal entity behind the token’s issuance is based in Bermuda, which is being contested on the grounds of lacking economic substance (similar to ENVION and TEZOS).
- As in the Envion and Tezos lawsuits, there are numerous references to the communication by the token issuer across social media platforms, Reddit, Telegram channels, etc., during the token sales, which clearly indicate that the issuer was or should have been aware of the speculative nature of the investors.
- The plaintiff also accuses the project founders of continuing to sell tokens that were supposed to be used to “build” and “sustain” the community.
- The plaintiff points to the economic reality and asserts that, naturally, the investment in the so-called utility token was made with the expectation of profit, something both the issuer and the plaintiff were aware of.
- Similar to the Tezos case, investors involved in the pre-sale also play a part in the lawsuit, as they reportedly consciously and manipulatively helped support the Main Sale.
Overall, the plaintiff and their legal team now clearly argue that the sale of the UKG utility token was, in fact, an investment, meaning the token issuers should have prepared a securities prospectus. Unikrn is being represented by Perkins Coie, a well-known US law firm that gained attention in the ICO world through the creation of the SAFT. Clearly, the performance of the UKG token (currently priced at $0.04) likely didn’t meet the plaintiff’s expectations, prompting them to seek at least a refund in Ether.
Given that many tokens are facing similar price challenges, it’s likely this lawsuit will serve as a precedent for similar legal actions in the future.
So, grab some popcorn, and let’s see how this unfolds…