Swiss Cryptocurrency Tezos finds itself in legal quagmire

Not only digital currencies are alike. Here is an interesting legal case involving Sweden’s Tezos cryptocurrency project where investors were left with a bad after taste.

According to sources familiar with the matter at hand, Arthur and Kathleen Breitman, the couple behind the embattled cryptocurrency Tezos wants the Tezos Foundation, a Swiss-based firm, to cover their costs for their class-action lawsuits which have accused them of fraud in relation to an online fundraiser it ran.

This essentially means that the participants of the initial coin offering would be footing their legal bills.

Incidentally, the contributors have yet to receive anything, even though the $232 million that the project raised in is controlled by the Tezos Foundation, has so far not agreed to the couples’ request, said the sources.

The foundation was established to develop the project.

Plaintiffs have alleged that the project was in violation of federal securities law and that the fundraiser defrauded participants who were told they were making non-refundable donations to the Swiss foundation.

The three lawsuits are seeking refunds as well as damages.

Although the project is yet ot be launched, contributors are set to receive new Tezos digital coins, called Tezzies, while their contributions which has been in bitcoins, have appreciated significantly.

Both lawsuits name as defendants the project’s young founders, their Delaware-based company, Dynamic Ledger Solutions Inc (DLS), which owns the Tezos source code, as well as the Zug-based Tezos Foundation.

In October, after an investigation by Reuters, it appears that the embattled couple were in bitter dispute with Johann Gevers, the foundation’s president, over control of the project.

As per Georg von Schnurbein, co-author of a book on Swiss foundation governance, there is no reason for the Tezos Foundation to cover the Breitmans’ legal costs.

“In my opinion, there is no reason for that because their activities were connected to their Delaware company, not to the foundation,” said Schnurbein.

The Tezos Foundation’s three board members could potentially be held liable by Swiss regulators if they were to agree “because the lawsuits have nothing to do with the foundation purpose, only with the collection of money prior to that,” said von Schnurbein.

The matter gets further complicated since there is a contractual agreement between DLS and the foundation, signed in June, which governs the sale of DLS and its intellectual property to the foundation, which states that the Swiss federal supervisory authority for foundations must approve the agreement.

The agreement also indicates that the approval must be had before the fundraiser took place. However, spokesman for the Swiss federal supervisory authority stated, “It is not the Foundation Authority’s task nor its responsibility to approve private law agreements.”

Further, the contract agreement also stated that a portion of the Tezos software code would be put in the public domain prior to the fundraiser.

The Tezos foundation said, it has a license to release the code and will do so “at an appropriate time before the launch of the main network.”

Significantly, documents provided to participants in the fundraiser did not mention the required approval by the Swiss authority or the timing of the source code’s release.

As per Stephen Palley, an attorney with Washington-based Anderson Kill, who focuses on software development, said if plaintiffs’ lawyers were to show that contributors to the Tezos fundraiser were purchasing securities, and not making donations, it is likely to help their case.

As per the agreement, the contributions were required to launch the Tezos network.

“This weakens the argument that tokens were a discretionary gift, akin to a tote bag given to people who donate to a public radio fundraising drive,” said Palley.

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