A federal court in New York ruled that the $27.5 million settlement offered by blockchain technology developer Block.one to investors who claim that the company should have registered its coin offering as a securities sale does not deserve final approval because absent class members are not adequately represented.
The lead plaintiff, a cryptocurrency investment fund, may have an incentive to settle for less money than the other investors would take if that ratio is smaller than the ratio of other investors’ US-governed transactions to overseas transactions, he added.
Judge Lewis A. Kaplan for the US District Court for the Southern District of New York stated on Monday that the “anonymous, decentralised ecosystem” of blockchain technology obscures the percentage of the lead plaintiff’s and class members’ purchases that were subject to US securities laws.
In two merged lawsuits, Crypto Assets Oppportunity Fund LLC and other investors claim that they bought ERC-20 and EOS tokens from Block.one during the company’s initial coin offering.
It didn’t register the sale with the US Securities and Exchange Commission, disclaimed that the tokens were securities, and tried to prevent sales to US residents, the investors allege. But it promoted its tokens in the US market, and some ICO purchasers were in the US, they say.
According to reports, Block.one raised money for the creation of new blockchain software by selling ERC-20 tokens.
Block.one and several individual defendants improperly failed to register with the SEC, made false statements about the technology, and pocketed some money, the investors say.
The court approved a conditional settlement class and granted preliminary approval to the settlement. Before the final approval hearing, it asked for data about foreign versus domestic sales in the Block.one ICO.
But CAOF provided “little to no information” on that issue, Kaplan said. Absent class members who made entirely or mostly domestic purchases had no say in the negotiations to reduce the settlement to account for foreign purchases, he said.
Grant & Eisenhofer PA was lead counsel for the plaintiffs. Davis Polk & Wardwell LLP and Waymaker LLP represented Block.one and the individual defendants.
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