The Block & Leviton law firm’s Tezos (XTZ) class action lawsuit will likely conclude in a $25 million settlement on August 27. Tezos, like many initial 2017 coin offerings (ICOs), has come under scrutiny from investors and regulators. It has also claimed that the sale of its token constituted an illegal offer of securities.
In fact, the U.S. Securities and Exchange Commission (SEC) has been very harsh with many 2017-era ICOs demanding sanctions for securities violations. Even distributions to non-U.S. citizens have fallen off the SEC’s radar, as was the case with Telegram.
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The SEC has consistently maintained that most ICOs are unlicensed securities offerings despite the refusal of domestic stakeholders to exempt a wider range of tokens from securities regulation. With more jurisdictions paying greater attention to cryptomoney-based fundraising, the ICO model appears to be a thing of the past with a greater focus on sales of regulated tokens.
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In late October 2017, Block & Leviton revealed that it was opening an investigation into Tezos‘ ICO for securities fraud. In mid-December 2017, the Boston-based law firm, which specializes in securities cases, sued the major players in Tezos‘ ICO.
By the time Block & Leviton initiated its own legal proceedings, the Tezos Foundation and Dynamic Ledger Solutions, the company created by Tezos‘ co-founder Arthur Breitman, had already been the subject of two other lawsuits. In November 2017, the cases against Tezos were also filed in the Federal District courts in California and Florida, respectively.
The lawsuit also occurred in the midst of a power struggle within the project itself. This internal dispute even affected the launch of the XTZ tokens to investors participating in the $232 million ICO in July 2017.
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In early 2018, the SEC rejected a request for information from the plaintiffs in the Florida case. According to the SEC at the time, the release of these documents could prevent future compliance activities. The U.S. securities regulator has so far not filed charges against Tezos‘ major players in the ICO.
By August 2018, these claims were consolidated into one case before the Northern California District Court. As reported by Cointelegraph at the time, Federal District Judge Richard Seeborg refused to grant the defendant’s motion to dismiss the case, paving the way for the matter to move forward.
As the court refused to dismiss the case and the lawsuit dragged on for approximately two years, the Tezos Foundation announced its intention to seek a settlement in March 2020. At that time, the Foundation stated that a single settlement was preferable to the legal fees associated with a protracted court battle.