Solana Labs is in serious legal trouble as it became the latest cryptocurrency company to be sued on charges of promoting an unregistered security, the SOL currency.
The class action lawsuit was filed on July 1 by Roche Freedman LLP and the Schneider Wallace Wallace Cottrell Konecky in the District Court for the Northern District of California on behalf of the plaintiff, Mark Young, who is a resident of the state.
Plaintiff’s lawsuit accuses Solana Labs, Solana Foundation, Anatoly Yakovenko, Multicoin Capital Management, Kyle Samani, and FalconX of selling unregistered securities in the form of Solana Currency (SOL) as of March 24, 2020:
“Defendants made enormous profits through the sale of SOL securities to retail investors in the United States in violation of the registration provisions of federal and state securities laws, and investors suffered enormous losses,” the complaint states, among other things.
Note that the plaintiff is taking action on behalf of both itself and other SOL investors, and cites further allegations that Solana Labs is making “intentionally misleading statements” about the total amount of SOL coins in circulation.
They question both the amount of SOL in circulation and the decentralized nature
According to the lawsuit, Solana Labs founder Anatoly Yakovenko lent a market maker more than 11.3 million SOL coins in April 2020 and failed to disclose this information to the public.
The company said it would reduce the offer by that amount, but it only “burned” 3.3 million coins, according to everything the lawsuit claims.
Plaintiffs also took umbrage with Solana’s claims of being a decentralized blockchain:
“As of May 2021, Solana’s founders own 48% of SOL. The network is therefore highly centralized,” the lawsuit adds.
The whole community is watching
The outcome of the lawsuit could have significant implications for Solana and the broader cryptocurrency industry. If it is proven in court that SOL is a movable value then it will be removed from the leading cryptocurrency exchanges.
We note that Coinbase and Kraken deleted Ripple (XRP) in late 2020 following the SEC’s lawsuit against Ripple, which is being litigated and is due to be concluded soon.
Adding to Solana’s overall difficulties
The lawsuit adds to the ongoing events affecting Solana’s reliability, with the network having suffered at least seven full or partial outages in the last 12 months.
These outages were cited in the filing of the lawsuit with allegations that they resulted in “great losses to network users” as they caused a dramatic drop in SOL’s transaction value.
Solana Labs and Multicoin Capital have yet to publicly comment on this lawsuit.
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