Solana Labs Hit With Class-Action Lawsuit Alleging SOL is an Unregistered Security

July 12, 2022, 9:45 AM AEST - 1 month ago

A class-action lawsuit has been filed against Solana Labs by an investor who claims the layer-1 blockchain is an unregistered centralised security.

According to the July 1 filing in a California district court, Solana investor Mark Young alleges that Solana cannot fit the definition of “decentralised” when nearly half of its supply is retained by people close to the project.

As of May 2021, insiders held 48 percent of the total SOL supply, supporting the argument that the network is highly centralised:

The suit represents Young and all investors who bought SOL tokens from March 24, 2020, forward. It accuses Solana Labs, Solana Foundation co-founder and CEO Anatoly Yakovenko, Multicoin Capital Management, Kyle Samani, and FalconX of selling the unregistered tokens.

Defendants made enormous profits through the sale of SOL securities to retail investors in the US in violation of the registration provisions of federal and state securities laws, and the investors have suffered enormous losses.

Class-action lawsuit filed against Solana Labs

Suit Invokes Howey Test

The lawsuit mentions that Solana is in violation of US law pertaining to the sale of unregistered securities and invokes the Howey Test – a four-part metric established to determine whether a transaction qualifies as an investment contract.

The suit outlines: “The sale of SOL securities constituted the sale of unregistered securities under controlling federal law. SOL securities exhibit the following particular hallmarks of a security under the Howey Test:

  • in order to receive any SOL securities, an investment of money was required;
  • the investment of money was made into the common enterprise that is Solana; and
  • the success of the investment and any potential returns were entirely reliant on Solana and [Anatoly] Yakovenko’s ability to create the promised network.”

Crypto Market Plagued by Class Actions

As regulations remain deficient, many digital platforms are finding themselves in hot water. Earlier this year, one of the world’s leading digital exchanges, Coinbase, was named in a class-action lawsuit that claimed the platform sold 79 different digital assets that constituted “unregistered securities”. US-based decentralised exchange Uniswap was also hit by a lawsuit claiming it too was selling “unregistered securities”.

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