Issue link: https://maltatoday.uberflip.com/i/1237083
7 maltatoday | SUNDAY • 19 APRIL 2020 NEWS MATTHEW VELLA A coordinated strike against some of the best-known compa- nies in the cryptocurrency has also targeted Binance, the cryp- to-trading giant which gave life to Founders Bank, the world's first decentralised bank in Malta. A US law firm filed class-action lawsuits which could represent tens of thousands of invetsors, aimed at Binance, Block.one, Bitmex, Tron and others, accus- ing them of having sold unlawful securities to investors in the form of digital tokens. As reported by Offshore Alert – calling it the crypto world's own 'red wedding' in a Game of Thrones reference – the 11 suits named 42 defendants in more than a dozen coun- tries, including Bi- nance founder Changpeng Zhao, better known as "CZ". The lawsuits allege that the to- ken issuers took advantage of the market's lack of understanding of how cryptocurrencies worked to sell these alleged illegal securi- ties to US citizens. "In 2017 and 2018, at the height of this frenzy of activity, hundreds of ICOs (initial coin offerings) raised nearly $20 bil- lion with virtually no regulatory oversight or guidance to inves- tors. Issuers and exchanges like Binance, preying on the pub- lic's lack of familiarity with the technology underpin- ning these tokens, char- acterized these tokens as 'utility tokens', even though they were in effect bets that a particu- lar project would develop into a successful venture. In truth, these tokens were securities un- der federal and state securities laws." The plaintiffs' lawyers de- scribed the ICOs as a 'Wild West' where investors are left to fend for themselves. The plaintiffs are seeking dam- ages for being sold assets that are not securities under US federal law. The damages being sought are not quantified in the actions. Binance declined to comment. The suit against Binance claims the crypto exchange sold se- curities without a licence and that, like the other defendants, wrongfully engaged in millions of transactions without register- ing the tokens as securities – and without Binance registering with the SEC as an exchange or bro- ker-dealer. "The scheme worked as follows: working to capitalize on the en- thusiasm for cryptocurrencies like bitcoin, an Issuer would an- nounce a revolutionary digital token… This token would typ- ically be billed as 'better, faster, cheaper, more connected, more trustworthy and more secure'. "The issuer would then sell some of its tokens in an initial coin offering to a small group of investors and then turn to Binance to list the new token, at which point Binance would undertake its own efforts to pro- mote sales, and to solicit and encourage purchases, by a wide universe of investors. "The issuers would thereby raise hundreds of millions, even billions, of dollars from purchas- ers of the tokens. Binance would profit handsomely as well by receiving a percentage of each trade and by receiving substan- tial payments from Issuers to have their tokens listed." The plaintiffs say the promis- es of new products and markets went unfulfilled, with inves- tors left holding the bag when these tokens crashed, now at a tiny fraction of their 2017-2018 highs. "Investors were provided with scant information when deciding whether to purchase a token. In fact, often the only offering ma- terials available to investors were 'whitepapers' that would de- scribe, in highly technical terms, the supposed utility of a token. These whitepapers would often omit, however, the robust disclo- sures that the securities laws and the SEC have long codified as es- sential to investor protections in initial public offerings, including use of 'plain English' to describe the offering." Binance hit by US class action over 'Wild West' crypto sales Binance founder Changpeng Zhao, once a poster-boy for Malta's publicity drive to turn into a 'Blockchain island'