Layer 1 blockchain Solana (SOL) faces a class action proceeding Proceedings In California submitted by token investor Mark Young.
According to court filings, the Solana Foundation, Anatoly Yakovenko, Solana Labs, Multicoin Capital, and FalconX benefited from the sale of unregistered securities.
Mark Young purchased SOL between August and September 2021, but soon realized that the token was an unregistered security and caused huge losses to individual US investors.
Founders and partners profited from selling SOL
In the proceedings, defendants like Multicoin Capital alleged that after buying tokens for $ 0.4 in 2019, they promoted the tokens and sold millions of SOL profitably to private investors. FalconX has been accused of facilitating the dumping of SOL tokens by Multicoin Capital.
Solana peaked at $ 258 in November 2021 during the bullish run of the crypto market. According to the proceedings, this is possible thanks to the efforts of the defendants, and while the average investor recorded losses, they benefited from a significant increase in value.
The claim of decentralization of Solana is questioned
The 40-page proceeding also attacked the allegations that Solana was decentralized.
According to Young, insiders own 48% of SOL’s total supply as of May 2021, while the Solana Foundation owns 13%, making it highly centralized. ..
“Solana Labs and its insiders directly control more than 50% of SOL’s total supply, so the underlying value of SOL depends primarily on the efforts of the defendant.”
In addition, the proceedings stated that Solana’s frequent network outages indicate that it is centralized. said:
“Defendants and their engineers unilaterally shut down the entire Solana blockchain for several hours to address this issue.”
Misunderstanding description
The proceedings also pointed out some of the “misunderstanding statements” caused by Solana.
For example, Solana Labs founder Anatoly Yakovenko said the Foundation has decided to lend 11.4 million SOL tokens to market makers in 2020.
The proceedings continued that the Foundation promised to remove 11.4 million tokens from distribution within 30 days. However, Solana eventually deleted only 3.3 million tokens.
The proceedings state that Solana fails the “howie test”
The proceedings believe that SOL is security under the Howey test.
The Howey test is used to determine if a transaction is an “investment contract” and is commonly used by the Securities and Exchange Commission (SEC) to evaluate such transactions.
according to InvestopediaIf you can expect profits from the efforts of others, there is an investment contract within the company.
According to the proceedings
“Purchasers who bought SOL securities invest money in the general company Solana and provide valuable services. These buyers are comparable to Bitcoin and Ethereum. We look forward to reasonable profits based on the efforts of the promoters, Solana Labs and the Solana Foundation, to build a blockchain network that will be accepted as a transaction framework in the blockchain. “
Young is represented by Roche Freedman LLP and Schneider Wallace Cottontrell Konecky. Roche Freedman LLP has taken legal action against Binance.US to promote Terra’s UST and LUNA.
At the time of the press, Solana had not yet responded to the proceedings.
What does this mean for other altcoins?
One of the biggest issues in the crypto industry is determining whether an asset is secure.
SEC Chairman Gary Gensler states that the majority of cryptocurrencies on the market can be classified as security.
Gensler Clarification The only exception to this is Bitcoin (BTC).
The SEC is currently involved in a proceeding against Ripple (XRP) over the sale of unregistered securities. The ruling in this case may determine the fate of other altcoins.
