Some may have missed a distinctive feature of the recently filed class action lawsuit by Silver Miller against Bitcoin mining company Giga Watt, Inc.: it is not a fraud suit. It is a suit for rescission (return of invested funds, with interest) based on the company’s having failed to register its pre-sale of tokens as an offering of securities with the SEC., under a “strict liability” provision of the Securities Act. (STORMSMEDIA LLC v, Giga Watt, Inc., 2:17-cv-00438-SMJ, U.S. Dist. E.D. Wash.)
While the complaint does allege that Giga Watt misrepresented facts to purchasers, and failed to keep funds in escrow until used as promised, the plaintiffs will not need to prove deception, scienter or any of the other elements of fraud to obtain court-ordered rescission.
Issuers of cryptocurrency and other tokens generally know that, if they are offering securities, they must register with the SEC or design their sale to conform to an exemption under the Securities Act.
Focusing on SEC enforcement concerns, token issuers who believe they are not offering securities will often obtain a “utility token” opinion from legal counsel, which typically concludes that the tokens are property, are not securities, and are not covered by the Securities Act.
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