Solana Sued For Being Unregistered Privacy

Layer-1 blockchain Solana (SOL) is faced with a class-action lawsuit in California filed by Mark Young, an investor in the token.

The Solana Foundation, Anatoly Yakovenko, Solana Labs, Multicoin Capital, and FalconX benefitted from the sale of an unregistered security, according to the court petition.

Mark Young purchased SOL in August and September 2021 but quickly discovered that the token was unregistered security, resulting in massive losses for retail investors in the United States.

According to the lawsuit, the defendants, such as Multicoin Capital, pushed the tokens after purchasing them for $0.4 in 2019 and profitably selling millions of SOL to retail investors. Multicoin Capital is accused of dumping SOL tokens using FalconX.

During the crypto market’s bull run, SOL reached a high of $258 in November 2021. According to the lawsuit, this was made possible by the defendants’ actions, and they gained from the large increase in value while the typical investor lost money.

The 40-page lawsuit also attacked the claim that SOL is decentralized. Young said insiders hold 48% of SOL’s total supply as of May 2021, while Solana Foundation held 13%, which makes it very centralized.

“Because Solana Labs and its insiders directly control more than 50% of the total SOL supply significantly, the underlying value of SOL depends primarily on the efforts taken by Defendants.”

Additionally, the lawsuit said that Solana’s frequent network outages showed that it is centralized. It said:

“The defendants and their engineers unilaterally shut the entire Solana blockchain off for hours to address this issue.”

According to the lawsuit, SOL is a security under the Howey test.

The Howey test is used to determine whether a transaction constitutes an “investment contract,” and the Securities and Exchange Commission (SEC) frequently uses it to evaluate such deals.

According to Investopedia, an investment contract arises in a business when earnings are expected from the efforts of others.

Per the lawsuit,

“Purchasers who bought SOL securities have invested money or given valuable services to a common enterprise. These purchasers have a reasonable expectation of profit based upon the efforts of the promoters, Solana Labs and the Solana Foundation, to build a blockchain network that will rival Bitcoin and Ethereum and become the accepted framework for transactions on the blockchain.”

Young is represented by Roche Freedman LLP and Schneider Wallace Cottrell Konecky. Roche Freedman LLP is pursuing legal action against Binance.US for promoting Terra’s UST and LUNA.

As of press time, Solana was yet to respond to the lawsuit.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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