SAN FRANCISCO — Cooley has stepped in to help defend embattled blockchain startup Tezos as securities class actions pile up over the company’s $232 million initial coin offering (ICO).
In court papers filed earlier this week, Cooley litigators Patrick Gibbs, Jeffrey Kaban and Daniel Sachs appeared on behalf of Tezos as co-counsel. Brian Klein of Los Angeles firm Baker Marquart is lead counsel for the company.
The lawyers have sought to remove the first case filed against Tezos to federal court in San Francisco, an out-of-state court where it has been pending.
At least three other suits have been filed since Tezos was initially sued in late October by San Diego lawyer James Taylor-Copeland on behalf of a plaintiff who spent one bitcoin—then valued at about $2,800—to buy Tezos tokens.
One case was filed Nov. 13 by the law firm Silver Miller in U.S. District Court for the Middle District of Florida. Aside from Taylor-Copeland’s case, two others are now pending in the U.S. District Court for the Northern District of California, filed by Levi & Korsinsky and the Restis Law Firm, respectively. It’s not yet clear whether the cases will be combined, or which judge will preside over them.
The suits all allege that Tezos broke securities laws by issuing “XTZ” tokens or “Tezzies” that were—in fact—securities without registering through the U.S. Securities and Exchange Commission. Two of the suits also allege that the defendants committed securities fraud.
Tezos conducted the ICO using a Switzerland-based foundation in July. It referred to the issuing of the tokens as a “fundraiser” in a presentation, and characterized the sale of the tokens as helping to speed the development of its network. Although it raised $232 million in bitcoin and ether at the time, the increasing value of those cryptocurrencies means that Tezos is now holding digital assets worth considerably more, the lawsuits allege.
The blockchain project has been led by husband-and-wife team Kathleen and Arthur Breitman, who founded a company called Dynamic Ledger Solutions Inc. Their role in establishing the Tezos Foundation in Switzerland is not entirely clear from public documents.
The suits come in the wake of an October blog post in which the Breitmans announced that their project had been delayed, and leveled accusations of self-dealing against the foundation’s president, Johann Gevers. He has denied those allegations.
Cooley has been active in the ongoing debate over the interaction between longstanding securities laws and emerging blockchain technologies. In October, several Cooley lawyers published a white paper with Protocol Labs on what they called the “SAFT framework,” a way to fund token projects without violating securities laws. (None of the Cooley litigators representing Tezos appear as authors on the paper.)
The paper has been controversial, and drew a rebuke in November from the Cardozo Law School’s Blockchain Project.
Gibbs is a securities litigator who joined Cooley from Latham & Watkins last year.