A New York judge has refused to green-light a nearly-$30 million settlement against blockchain software company Block.one on the grounds that the lead plaintiff is unable to properly represent the class.
As reported Law360, Crypto Assets Opportunity Fund LLC claims that the Cayman Islands-based firm’s $4 billion EOS token ICO broke securities laws. Specifically, that it sold the tokens without registering them with the US Securities and Exchange Commission (SEC).
The plaintiffs also allege that Block.one wasn’t straight about how it used proceeds from the sale. It originally said that the funds would be used to further develop its blockchain technology but it actually siphoned the money to its Hong Kong-based trading arm and invested in digital assets and government bonds.
This, says Crypto Assets, meant the company’s tech, along with the price of the token, suffered.
However, in a 25-page order, District Judge Lewis A. Kaplan said that there are too many questions regarding the proportion of tokens bought by Crypto Assets compared with the domestic purchases by absent class members.
“This follows from the fact that [Crypto Assets], in view of the proportion of its investments made in domestic versus foreign transactions, may have had an incentive to accept a lower settlement offer than would have been insisted upon by absent class members who purchased only or more predominantly in domestic transactions,” wrote Kaplan (via Law360).
Crypto Assets is happy to take less but can’t speak for others
Kaplan also raised questions about how the parties involved have agreed to split the $27.5 million Block.one settlement. It had been decided to dish out the funds on a pro-rata basis but, as Crypto Assets accepted an offer 75% less than the overall loss to class members, the amount to be paid out is reduced.
Kaplan added: “In this case, the court has not been persuaded that the requirement of adequate representation has been satisfied.”
“And it hastens to add that it implies no misconduct or criticism of the lead plaintiff or its experienced and well regarded lead counsel. The problem … is a structural problem having roots in the unusual market that the case Concerns,” (our emphasis).
Block.one previously agreed to pay out $24 million but didn’t admit to or deny the SEC’s allegations.