The Solana Foundation, Anatoly Yakovenko, Solana Labs, Multicoin Capital, and FalconX profited from the sale of an unregistered security, according to the court filing.
Mark Young purchased SOL between August and September 2021, but soon discovered that the token was an unregistered security, resulting in massive losses for retail investors in the United States.
SOL sales benefited the founder and his partners
According to the lawsuit, the defendants, such as Multicoin Capital, promoted the tokens after purchasing them for $0.4 in 2019 and profitably selling millions of SOL to retail investors.
Multicoin Capital is accused of dumping SOL tokens through FalconX. During the crypto market’s bull run, Solana reached a high of $258 in November 2021.
According to the lawsuit, this was made possible by the defendants’ efforts, and they profited from the massive increase in value while the average investor lost money.
Solana’s decentralization claims are being questioned
According to Young, insiders own 48 percent of SOL’s total supply as of May 2021, while the Solana Foundation owns 13 percent, making it very centralized.
“Because Solana Labs and its insiders directly control more than 50% of the total SOL supply significantly, the underlying value of SOL depends primarily on the efforts taken by Defendants.”
Furthermore, the lawsuit claimed that Solana’s frequent network outages demonstrated that it is centralized. It stated:
“The defendants and their engineers unilaterally shut the entire Solana blockchain off for hours to address this issue.”
Misleading statements
The lawsuit also called out some of Solana’s “misleading statements.” Solana Labs founder Anatoly Yakovenko, for example, stated that the Foundation has decided to lend 11.4 million SOL tokens to a market maker in 2020.
According to the lawsuit, the Foundation promised to remove the 11.4 million tokens from circulation within 30 days. However, Solana only removed 3.3 million tokens in the end.
According to the lawsuit, Solana will fail the “Howey Test.”
According to the lawsuit, SOL is a security under the Howey test. The Howey test is used to determine whether a transaction is an “investment contract,” and the Securities and Exchange Commission (SEC) frequently uses it to evaluate such transactions.
To read our blog on “FATF is calling for tighter controls on cryptocurrency transactions,” click here
