The fallout could spell an awful precedent for ICO’s.
Blockchain startup Tezos, which raised $232 million in July this year, is now the subject of several lawsuits including one claiming that they broke laws governing unregistered securities outlined by the Securities and Exchange Commission (SEC). If proven, any penalties the SEC will hand down to Tezos could become a precedent that can be used as a weapon to crack down on ICOs.
The company is now worth over $400 million as the cryptocurrencies with which investors bought their shares have already increased in value. Founded by married couple Arthur and Kathleen Breitman around 2014, the project promised to deliver an improved version of the Bitcoin blockchain in terms of flexible governance rules. The company promised to deliver that network two months ago along with corresponding digital coins called “Tezzies” to investors. But to this day, the promised network does not exist, and neither do the coins.
This contradicts Arthur Breitman’s own words. In May, he published a post practically saying the project is close to completion and would be ready in three to four months.
“All of the functionality described in the whitepaper has been implemented to this date, except for gas metering. Most of the remaining work consists in finishing a security addition that we made to the network shell to increase its resilience to DDOS, optimizing smart-contract storage, and — most importantly — testing our network on a large scale and performing external security audits.”
Prior to this, the couple has been embroiled in a nasty public power struggle against their own appointed president, Johann Gevers—who alleges that the couple has been trying to control the foundation and the funds despite not having any formal role in management. The Breitmans have accused Gevers of self-dealing and of trying to dip his hands in the funds for millions of dollars in bonuses, and have been trying to kick him off the position.
As the project has failed to deliver its promises on time, investors have started unleashing a legal battle against the couple. The latest lawsuit claims that the couple has deceptively passed off investor funds as donations, having conveniently conducted the $232 million crowdsale through their Switzerland non-profit entity, Tezos Foundation. It also alleges that the couple has been “pocketing tens of millions of dollars for themselves.”
A report by Reuters says that no refund will be issued to investors, as it was stated in the crowdsale when investors made their “donations.”