Dfinity has been hit with a class-action suit in California alleging that the company sold its native Internet Computer Project (ICP) tokens as an unregistered security.
The complaint has been filed by California resident Daniel Ocampo “on behalf of all investors who purchased Internet Computer Project tokens on or after May 10, 2021."
The suit targets Olaf Carlson-Wee’s cryptocurrency hedge fund Polychain Capital, venture capital firm Andreessen Horowitz, and Dfinity's founder Dominic Williams as the “controlling defendants.” Polychain and Andreessen Horowitz were early backers of the project.
Decrypt has contacted all three parties for comment.
Dfinity is a blockchain smart contract platform that hopes to compete with the $370 billion cloud computing industry by bringing decentralized versions of killer apps like Whatsapp, Linkedin, and Uber. Its ICP token would be used as a governance tool, to pay for transaction fees within the network, as well as a reward for users that interact with the platform.
After a successful Genesis launch in May, ICP was listed on Coinbase Pro. Since then, its price has been extremely volatile.
Crypto intelligence firm Arkham Intelligence recently published a report on Dfinity's native token after analysts noticed the token’s 90% price crash in its first month was highly unusual for a project with such heavyweight venture capital investment and technological ambition.
In an email, a Dfinity spokesperson called the Arkham report "ludicrous" and said it's a "very poor source of information."
Arkham identified some $2 billion in ICP tokens were transferred to cryptocurrency exchanges by “probable insider addresses” after the Genesis launch and said that these transfers coincided with notable drops in price.
The lawsuit alleges the 469,213,710 ICP tokens that were made available during ICP's Genesis launch event were “created out of thin air” and sold in violation of the 1933 Securities Act.
The suit also states that 24% of the current supply of ICP tokens was given to the “controlling defendants,” with Polychain and Andreessen Horowitz taking a lion’s share between them.
Supposedly, ICP tokens were sold to investors under the belief that they were investing in a common enterprise and could expect future profits from the future success of Dfinity’s Internet Computer Project.
Taken together, the report and the class action suit conclude that Dfinity has not been transparent about the allocation of its ICP tokens, leaving long-time supporters and small investors out of the loop while a coterie of insiders made huge profits from token sales.