A potential class-action lawsuit filed in a California federal court last week accuses key players in the Solana ecosystem of illegally profiting from SOL, the blockchain’s native token that, according to the suit, is an unregistered security.
“The cornerstone of the value of SOL securities is the sum of Solana Labs, Solana Foundation, and [Anatoly] Yakovenko’s management and implementation of the Solana blockchain,” the suit alleged. It described SOL as a highly centralized cryptocurrency that has benefited its insiders to the detriment of retail traders.
Filed by California resident Mark Young, who said he bought SOL in late summer 2021, the suit names Solana Labs, the Solana Foundation, Solana’s Anatoly Yakovenko, crypto VC giant Multicoin Capital, Multicoin’s Kyle Samani and trading desk FalconX.
A Solana spokesperson declined to comment. Multicoin and FalconX did not immediately respond to a request for comment.
According to the complaint, Young alleges the way SOL was created and sold meets the three tenets of the Howey Test, a U.S. Supreme Court precedent commonly used as a barometer for whether the sale of something is a security or not.
“Purchasers who bought SOL securities have invested money or given valuable services to a common enterprise, Solana. 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,” the filing said, addressing the three forks of the Howey Test.
In the filing, Young pointed to several sales of the SOL token or agreements to sell the SOL token ahead of the public sale of the token.
Solana Labs filed a Form D with the U.S. Securities and Exchange Commission (a filing saying the sale was of securities exempt from SEC registration), noting the company was selling “the future rights” to around 80 million SOL, according to the filing.
Multicoin, a major crypto venture capital firm that has invested heavily across the Solana ecosystem, “offloaded millions of dollars of SOL” onto retail after “relentlessly” promoting the token in spite of Solana blockchain’s tech issues, the suit alleged. This alleged offload passed through FalconX over-the-counter trading desks, the suit said.
UPDATE (July 7, 2022, 15:00 UTC): Clarifies that this is not a class action lawsuit yet, just a putative one.