SOL Investor Accuses Solana Labs of Flouting Securities Laws

California resident Mark Young has filed a class-action lawsuit against big players in the Solana ecosystem and Multicoin Capital. Young filed the complaint in the US District Court for the Northern District of California in the past week. He claims several Solana parties illegally profited from the sale of Solana (SOL), the native token of the Solana blockchain.

The filing names Solana Labs, the Solana Foundation, Solana co-founder Anatoly Yakovenko, crypto VC giant Multicoin Capital, Multicoin co-founder Kyle Samani, and trading desk FalconX as the entities that profited from SOL.

Per the complaint, SOL’s creation and sale meet three prongs of the Howey test. The US Supreme Court uses this test to determine whether a transaction qualifies as a security.

Additionally, the complaint claims SOL investors offered Solana valuable services.

It goes on to note that these investors have a reasonable expectation of profit based on how Solana Labs and the Solana Foundation promoted Solana. The lawsuit claims the two entities shilled Solana as a blockchain network that would rival Bitcoin and Ethereum.

According to the complaint:

The cornerstone of the value of SOL securities is the sum of Solana Labs, Solana Foundation, and Yakovenko’s management and implementation of the Solana blockchain.

The filing further claimed that SOL is highly centralized and that its operators benefited at the expense of retail traders. 

Solana Labs Sold SOL Ahead of the Public Offering

The complaint further noted that Solana sold SOL before the public sale in March 2020.

Specifically, the filing claims that:

On May 21, 2018, Solana Labs filed a Form D (Notice of Exempt Offering of Securities) with the SEC in connection with the Seed Sale, indicating sale of securities exempt from registration under Rule 506(c).

Purportedly, Solana Labs sold 63,151,982 tokens (approximately 12% of the initial supply) in a June 2018 founding sale. The lead investor in this round was Multicoin Capital. Multicoin also invested in Solana Labs Series A funding round in 2019, purchasing SOL at $0.40.

The complaint claims that Multicoin proceeded to promote SOL relentlessly before selling its holdings to retail investors and profiting handsomely. Allegedly, the company used brokerage services from OTC trading desks like FalconX to offload its SOL holdings.

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This news does not seem to have affected SOL’s performance. At the time of writing, the token is up 4.50% over the past 24 hours to trade at $37.20. However, the winter market has ravaged SOL which hit an ATH of $260.06 on November 6, 2021.

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