Troubling times over at Tezos — the blockchain company that made headlines in July when it snapped up $232 million through its independent coin offering. The firm has been hit with not its first — but its second — class action lawsuit in under four weeks against the firm and husband-wife founding team Arthur and Kathleen Breitman.
The Breitmans promised a new blockchain — with governance better than bitcoin’s and built to withstand the kind of strike that has made bitcoin something of a bouncing ball in the market (though one that of late has managed to float mostly up). What they instead have is an intense legal conflict with Johann Gevers, the man they picked to lead the Tezos Foundation (which controls the ICO fund).
The lawsuits argue that, legally speaking, the Tezos ICO is an offering of securities for sale, something companies can only offer after they register with the Securities and Exchange Commission (SEC). The lawsuits argue the Breitmans broke the law by ignoring SEC rules.
Investors might have been more flexible if the Breitmans had delivered what they promised, but thus far, the Tezos network launch is overdue, and investors are wondering if they are about to eat a loss.
The Tezos network is widely regarded as a good idea — a blockchain network capable of adapting itself and its rules over time. The problem is that the Tezos network as advertised doesn’t exist yet. Tezos didn’t lie about that — the deal during the ICO was that investors were purchasing a right to receive units of Tezos currency when the network was up and running.
But the network is now three months behind on its launch date — and the leadership structure is consumed with infighting.
The Breitmans now have a series of high stakes lawsuits ahead of them. If they lose in court, they may be legally required to return the funds they raised during that initial summertime ICO. They could also conceivably see more action from the SEC.
More broadly, Tezos was one of the most successful coin offerings conducted in 2017, but it was far from the only one. And the vast majority of them are not registered with the SEC and could also be at risk.
If the courts decide that Tezos violated securities laws, it could put many of this year’s other ICOs in legal jeopardy. So far, the SEC has not acted. In the wake of a court ruling against Tezos, it just might.