LDN - Business

Tezos organizers hit with second lawsuit over cryptocurrency fundraiser

[November 16, 2017] By Anna Irrera and Steve Stecklow

(Reuters) - A second lawsuit was filed this week against the organizers of cybercurrency technology project Tezos, an initiative that raised $232 million to issue a cryptocurrency that does not exist and fund development of a transaction system that has no clear end date.

The class action lawsuit, filed in a U.S. District Court in Florida by Coral Springs-based law firm Silver Miller, alleges that Tezos' organizers broke U.S. securities laws and defrauded and misled participants in the online fundraiser, according to court documents.

Many who put money toward the initial coin offering consider themselves investors, but the funds were raised as non-refundable donations.

The lawsuit was filed on Monday and made public on Wednesday. The defendants are Kathleen and Arthur Breitman, the co-founders of the project; their Delaware-based company Dynamic Ledger Solutions Inc, which owns the rights to the transaction system's code; and the Tezos Foundation, a Swiss entity that was set up to carry out the fundraiser.

It is the second lawsuit in less than a month to hit the embattled project that in July raised funds in one of the largest ever initial coin offerings, a popular way for technology startups to collect money by issuing cryptocurrencies.

Johann Gevers, president of the Tezos Foundation, declined to comment on the ongoing litigation, and Brian Klein, an attorney for the Breitmans, did not immediately respond to Reuters request for comment.

The lawsuit quotes from a Reuters investigation and reports published in October that revealed details of a backroom battle between the Breitmans and Gevers over control of the project. The dispute has delayed the project. (http://reut.rs/2yGk6IT)

[to top of second column]

Tezos co-founder and CTO Arthur Breitman and his wife and co-founder Kathleen Breitman respond to questions during the Money 20/20 conference in Las Vegas, Nevada, U.S. on October 24, 2017. REUTERS/Steve Marcus

The lawsuit alleges that contributors to the fundraiser were not told that it could take more than three years for the Swiss foundation, which holds the funds, to purchase Dynamic Ledger Solutions and the project's source code.

This time frame, revealed by Reuters, was not disclosed to investors despite being "a highly material fact," the lawsuit alleges.

Plaintiffs are asking for a refund as well as damages, according to the lawsuit. It also alleges organizers sold unregistered securities.

"As a result of Defendants' fraud, false representations and violation of federal and state securities laws in connection with the Tezos ICO, Plaintiff and the Class Members state their demand that the Contract be rescinded and canceled," the lawsuit states.

Other law firms have said they are considering litigation.

(Reporting by Anna Irrera and Steve Stecklow; Editing by Lauren Tara LaCapra and Cynthia Osterman)

Back to top