Solana Labs Faces Class Action Lawsuit Over Violation of Securities Laws

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Altcoins Crypto Regulation
Solana Labs Faces Class Action Lawsuit Over Violation of Securities Laws

An aggrieved investor is accusing Solana Labs, its co-founder, and other entities of promoting the SOL token classified as unregistered security which benefited insiders and caused losses to investors.

SOL Tokens Sold as Unregistered Securities

A California resident Mark Young filed a class-action lawsuit in the United States district court for the Northern District of California, on behalf of other SOL investors, against Solana Labs, Solana Foundation, Solana CEO and co-founder Anatoly Yakovenko, crypto investment firm Multicoin Capital and its co-founder and managing partner Kyle Samani, and digital asset trading platform FalconX. 

Young, who purchased SOL tokens between August and September 2021, said that the defendants promoted and sold Solana as unregistered securities. The plaintiff also claimed that the token fulfilled the three characteristics of being a security under the Howey test. 

According to the complaint:

“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.”

Young also said that Multicoin and Samani were not passive investors but were rather deeply involved in the Solana ecosystem. Both parties promoted Solana, with Multicoin leading a Series A funding round back in July 2019. 

However, the plaintiff noted that the crypto investment company and its co-founder Samani made huge profits following the promotion of the SOL tokens. An excerpt from the court document reads:

“The Multicoin Defendants offloaded millions of dollars of SOL securities on retail investors such as Plaintiff and profited handsomely from their promotion of unregistered SOL securities. To offload the SOL securities, they have used OTC trading desks such as FalconX to act as a broker for the sale of substantial sums of SOL securities.”

Solana Blockchain Network Highly Centralized

The lawsuit further stated that contrary to the defendants’ claims about SOL being decentralized, the network is “highly centralized”, pointing to the several network outages suffered in recent months. 

As previously reported by crypto.news, the Solana network was down for about 17 hours in September 2021. Later in January 2022, Solana suffered a performance degradation, with Yakovenko explaining that the issue was not a result of a distributed denial-of-service (DDoS) attack, but the “pain of getting a new runtime commercialized.” 

At the beginning of June, the blockchain network was again forced to halt block production for four and a half hours, before validator operators restarted the Solana mainnet. The team identified the problem, stating:

“A bug in the durable nonce transactions feature led to nondeterminism when nodes generated different results for the same block, which prevented the network from advancing.”

Later in June, Solana announced the release of a new update that would bring stability to the network. Developers are looking to replace Solana’s user data protocol (UDP) with Google’s QUIC Protocol. The introduction of QUIC is supposed to help stop bots from spamming transactions and congesting the network. 

Anthonia Isichei

A graduate of English, She stumbled on cryptocurrency while trying to proofread an article for a friend back in 2011, and since then, She has been hooked! She loves to play word games and tennis.