Class-Action Lawsuit Filed Against Solana

An investor has filed a lawsuit against several key individuals in the Solana ecosystem on the grounds that they made profits from SOL at the expense of other investors.

An investor has filed a lawsuit in a federal court in California against Solana Labs, the organization that is responsible for the Solana blockchain, as well as several other key players in the Solana ecosystem. The investor claims that the defendants have been illegally profiting from SOL, which is the native token of the Solana blockchain.

Allegations Leveled Against Solana Labs Include Breach of Securities Law and Highly Centralized Operations

The primary parties involved in the Solana ecosystem are accused of breaking securities law by releasing unregistered securities in a class-action lawsuit that was submitted to a federal court in California. According to the complaint, SOL is a highly centralized cryptocurrency that has been to the advantage of the company’s executives at the expense of outside investors. The complaint states that:

“The cornerstone of the value of SOL securities is the sum of Solana Labs, Solana Foundation, and Yakovenko’s management and implementation of the Solana blockchain. They created the Solana blockchain network and all of the SOL securities in circulation, and likewise determined who would receive SOL securities and under what conditions.”

The lawsuit was initiated by a California resident by the name of Mark Young, and it names as defendants Solana Labs, the Solana Foundation, Solana co-founder Anatoly Yakovenko, crypto VC giant Multicoin Capital, Multicoin Capital co-founder Kyle Samani, and trading desk FalconX. Mark Young is also a defendant in the lawsuit. Young asserts that he acquired SOL between the months of August and September of 2021.

Young stated in the complaint that the manner in which SOL was created and sold satisfies the three principles of the Howey Test. The Howey Test is a case that is used by the United States Supreme Court to determine whether a transaction qualifies as an “investment contract.” If it does, then the transaction would be considered a security and would be subject to disclosure and registration. According to the filing,

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“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 legal firm Roche Freedman stated in an accompanying press statement that Young’s claims are pursued as a class action on behalf of Young and other SOL investors who purchased the coin after March 24, 2020. In addition, the company has initiated legal action against Binance.US, accusing the cryptocurrency exchange of deceiving investors following the collapse of the Terra ecosystem.

The Debate Over Whether or Not Solana Should Be Decentralized

In contrast to the statements made by Solana Labs, Young asserted that the Solana network is “very centralized.” Solana Labs stated that the network is decentralized. According to his assertions, company insiders controlled 48 percent of the SOL supply as of May 2021.

In the complaint, he also mentioned how “devastating” the interruptions caused by Solana were. According to the reports, Solana was taken offline for the seventh time in the month of May. Prior to this, the network experienced an outage that lasted for five hours in December of 2020 and an outage that lasted for eighteen hours in September of 2021. In the beginning of January, it was also the target of a DDOS attack.

After an outage, the team would typically have to upgrade the network and then restart it in order to fix the problem. Even before the complaint was lodged, this caused some members of the cryptocurrency community were wary about the decentralized nature of the project.

The outcome of the class-action lawsuit is still up in the air at this point. However, it is important to note that the securities violation charges are comparable to those that a large number of other cryptocurrency companies have been confronted with over the past several years, particularly the one that Ripple has been having trouble with.

The SEC filed a lawsuit against Ripple in December 2020 over allegations that the business, its CEO Brad Garlinghouse, and its executive chairman Chris Larsen engaged in unlawfully marketing securities by selling XRP. Ripple, on the other hand, contends that XRP ought to be regarded more like a virtual currency and less like a contractual obligation.

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