Plaintiffs claim that Solana’s SOL token is a centralized security with insiders profiting immensely while retail traders got rekt.
Solana Labs is the latest crypto company to be hit with a lawsuit accusing it of promoting an unregistered security.
The class action was filed on July 1 by Roche Freedman LLP and Schneider Wallace Cottrell Konecky in the district court for the northern district of California on behalf of plaintiff Mark Young, a state resident.
The lawsuit accuses Solana Labs, the Solana Foundation, Anatoly Yakovenko, Multicoin Capital Management, Kyle Samani, and FalconX, of selling unregistered securities tokens in the form of SOL from March 24, 2020.
“Defendants made enormous profits through the sale of 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 plaintiff is taking action on behalf of himself and other SOL investors with further claims that Solana Labs “deliberately misleading statements” concerning the total circulating supply of SOL tokens.
According to the lawsuit, Solana Labs founder Anatoly Yakovenko lent a market maker more than 11.3 million tokens in April 2020 and failed to disclose this information to the public. The company stated it would reduce the supply by this amount but only burnt 3.3 million tokens, the lawsuit claims.
The plaintiffs also took umbrage with Solana’s claims of being decentralized. “As of May 2021, insiders held 48% of the SOL supply. The network is thus highly centralized,” it added.
The lawsuit’s outcome could have significant implications for Solana and the broader crypto industry. SOL may be delisted from leading crypto exchanges if it is deemed to be a security by a court. Coinbase and Kraken delisted XRP in late 2020 following the SEC’s lawsuit against Ripple, which is soon to be concluded.
Related: Reliably unreliable: Solana price dives after latest network outage
The suit comes on top of Solana’s ongoing reliability woes, with the network having suffered at least seven full or partial outages over the past 12 months. These outages were mentioned in the filing with claims they resulted in “major losses for network users” as they caused the trading value of SOL to fall dramatically.
SOL prices have tanked 85% from their November 6 all-time high of $260 and are currently trading at a little under $40, according to CoinGecko.
Solana Labs and Multicoin Capital were contacted for comment but had not responded by the time this article was published.