In brief
- The Tezos Foundation proposed a settlement in a $25 million lawsuit.
- The organization says it’s tired of paying high legal costs.
- It thinks that the lawsuit is meritless.
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The Tezos Foundation, the non-profit that maintains the Tezos proof-of-stake blockchain, yesterday announced that it has entered into a settlement with investors. The plaintiffs are suing the company for $25 million on allegations that the Tezos Foundation ran an unregistered securities sale.
The settlement has not yet been approved by the court, but the Tezos Foundation stated that it was too “expensive and time-consuming” to continue the lawsuits, which it deems “meritless,” and “continues to deny any wrongdoing.”
After its $232 million initial coin offering, the Tezos project has faced several class-action lawsuits. These were later consolidated, and negotiations for a settlement started at the end of 2018. Investors asked for $25 million to be paid out in cash.
Those who bought Tezos tokens early on claimed that their contributions constituted investments. If so, the token sale should have been classified as a securities sale.
Securities sales have to be registered with the US Securities and Exchange Commission (SEC). Since Tezos didn’t register with the SEC, the plaintiffs allege that the token sale unregistered—and thus illegal—and that they’re entitled to get compensation.
Legal costs aside, the settlement could help Tezos neatly avoid future problems with regulators. Should a judge ever determine that Tezos constitutes a security, it would have to register with the SEC and comply with its strict regulations.
Lawsuits and the costs associated with them have hurt crypto companies in the past. As Decrypt reported last August, Horizon State, a blockchain platform for voting based in Australia, shut down after a lawsuit was filed against it, due to high legal costs.
And the Kik corporation, the company responsible for the popular messenger app, Kik, laid off most of its workers and sold off the app late last year to focus on a battle with the SEC concerning its crypto offering, Kin. Like the Tezos lawsuit, the SEC alleges that Kik's $100 million token sale was an unregistered securities sale.
Tezos, foreseeing future legal troubles, might’ve just dodged a bullet.