YEREVAN (CoinChapter.com) — A Solana investor has filed a class-action lawsuit against Solana Labs, one of the companies working on the development of the Solana blockchain. The lawsuit accuses the company of promoting Solana’s native token SOL as an unregistered security. The price of SOL risks falling further.
Mark Young, the plaintiff, also named other big names in the Solana ecosystem. Solana CEO Anatoly Yakovenko, crypto investment firm Multicoin Capital, its co-founder Kyle Saman, are among the accused. Crypto trading platform FalconX is also a defendant in the case.
“Defendants made enormous profits through the sale of Solana (SOL) securities to retail investors in the United States, in violation of the registration provisions of federal and state securities laws, and the investors have suffered enormous losses,”
the lawsuit alleges. Recommended: Solana (SOL) Holds Strong But Needs To Clear $40 For Hopes of a Fresh Surge
Solana Network highly centralized
Law firms Roche Freedman LLP and Schneider Wallace Cottrell Konecky filed the lawsuit in the northern district court of California on behalf of Mark Young.
The litigation claims Solana Network is highly centralized. Its founders allegedly allocated a large number of the tokens to company insiders and their associates.
According to the accusations made, insiders held 48% of the total SOL supply as of May 2021, when the plaintiff purchased his SOL holdings.
“Defendants deliberately chose to sell only a small amount of its token supply (less than 2%) in its 2020 ICO. Defendants did this to (1) ensure they had de facto control over the Solana blockchain and (2) to artificially drive down the available supply of SOL securities through coordination amongst themselves,”
the filing reads.In addition, the filing alleges Solana Foundation owned 13% of SOL securities.
Young also alleges several outages and network failures have caused large amounts of losses for retail investors like himself.
In April of 2020, Solana Labs founder Anatoly Yakovenko allegedly lent a market maker more than 11.3 million tokens. In a breach of investor trust, he failed to make this information known to the public.
Despite making several promises to burn an equal number of tokens, the founders failed to do so. They allegedly burnt only 3 million tokens, leaving the rest in the market.
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Crypto exchange FalconX felicitates SOL dumping
According to the lawsuit, crypto investment firm Multicoin Capital Management LLC and its founder relentlessly promoted SOL securities after purchasing them for just $0.40 in 2019.
After the prices of SOL spiked, thanks to their PR efforts, they dumped their holdings in the open market. As a result, they profited handsomely from their promotion of unregistered SOL securities.
In contrast, retail investors, who purchase tokens because of such tactics, were left under heavy losses.
Over-the-counter (OTC) trading desks FalconX acted as a broker for the sale of substantial sums of SOL securities. The crypto platform allegedly sold the SOL tokens through U.S.-based exchanges, such as Coinbase.
Last month, FalconX raised $150 million at an $8 billion valuation.
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SOL price attempts recovery as Solana Labs faces lawsuit
Ever since the price of SOL fell to a new higher low on 30 June 2022, the token has seen some positive movements. It has rallied about 25% to bring the price of SOL to $39 per token.
As it starts, Solana bulls are attempting to reclaim the $50 mark. Meanwhile, it remains around 80% down from its price at the start of the year.
However, the new lawsuit poses a serious threat to Solana’s chances of continuing the rally. A price reversal could push SOL down by as much as 70% to $18 per token.
Moreover, the outcome of the lawsuit could have lasting implications for the crypto industry at large.
In December 2020, the US Securities and Exchange Commission (SEC) sued Ripple Labs over an alleged illegal sale of security via the cryptocurrency XRP.
As a result of the case, several cryptocurrency exchanges, including Kraken, Coinbase, and Binance US, delisted the token. The price of XRP also tanked.
Should the court determine that SOL is a security, then similar altcoins could face similar actions. In addition, crypto exchanges could also face lawsuits on related accusations like FalconX.
The crypto industry at large, and Solana investors in particular, will closely follow this class-action lawsuit against Solana. Can SOL survive? Time will tell.
