USA – CALIFORNIA Trends and Developments Contributed by: Bahram Seyedin-Noor, Jared Kopel, Joshua Korr and Monica Eno, Alto Litigation
development of the Terraform blockchain sys- tem (SEC v Terraform Labs Pte Ltd, 708 F Supp 3d 450 (SDNY 2023)). In June 2024, the SEC announced that Terraform and its founder, Do Kwon, agreed to pay USD4.5 billion following a jury verdict holding them liable for orchestrating a years-long fraud that resulted in substantial investor losses. Separately, the US District Court for the Northern District of California ruled on a motion for sum- mary judgment in In re Ripple Labs, Inc Litig, 2024 WL 3074370 (ND Cal 20 June 2024). The plaintiff brought shareholder class claims under Sections 12(a)(1) and 15 of the Securities Act of 1933 and California Corporations Code Sections 25503 and 25504. He also brought claims in his individual capacity for violations of California Corporations Code Section 25501 and 25504.1. Judge Phyllis Hamilton dismissed the federal claims as time-barred and the Section 25503 claim for lack of privity. All that remained was a claim based on a single alleged misstatement by Ripple’s CEO Garlinghouse. But Judge Hamilton rejected the analysis of Judge Torres, holding that she declined as a matter of law to hold that a reasonable investor would have expected a profit because of market trends rather than Rip- ple’s own promotional efforts. In SEC v Coinbase, Inc, 2024 WL 1304037 (SDNY 27 March 2024), the court – on a motion for judgment on the pleadings – held that the SEC had plausibly alleged that Coinbase oper- ated as an unregistered intermediary of securi- ties and therefore could be liable for failing to register as national securities exchange, broker and clearing agency. A cryptocurrency exchange has sued the SEC, asserting that it lacks juris- diction over the secondary sale of tokens (Foris DAX Inc, v SEC, Case No 6:24-cv-00373 (ED Tex 8 October 2024).
Other California-based cryptocurrency compa- nies that were the subject of SEC actions in 2024 include the following. • In SEC v Vy Pham, filed in the District of Massachusetts on 9 October 2024, the SEC alleged that the defendant (a resident of Los Angeles) participated in the offer and sale of Saitama, a crypto-asset that was offered and sold as a security. The SEC asserted that Pham and others manipulated the price and trading volume for Saitama in order to create the illusion of growing market interest. The SEC also alleged that Pham subsequently marketed another crypto-asset called the Robu Inu Finance Token while promising investors that she would develop an “ecosys- tem” to increase the value. The SEC charged Pham with failing to register the crypto-assets as securities and fraud. • SEC v Mango Labs LLC et al, filed on 27 Sep- tember 2024 in the Southern District of New York against a crypto-asset trading platform that had been based in California, alleged that the defendants raised more than USD70 million through the unregistered offer and sale of crypto-assets to hundreds of investors worldwide. • In SEC v Nonobit Limited et al, filed in the US District Court for the Eastern District of New York, the SEC alleged that one of the corpo- rate defendants – Radiant Horizons Limited, a California company – and two individuals residing in California were part of a scheme to delude investors into believing that they were trading crypto-assets and making profits. • In re Matter of Impact Theory, LLC, Admin Proc File No 3-21585 (8 August 2023) was a settled proceeding in which the SEC alleged that Impact Theory LLC, a Los Angeles-based media and entertainment company, offered and sold crypto-asset securities in the form of
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