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Companies behind the Solana ecosystem are being sued for breaking the law
The plaintiff, Mark Young, filed a lawsuit on July 1 against the companies behind the Solana blockchain – Solana Labs, Solana Foundation, crypto investment firm Multicoin Capital and its co-founder Kyle Samani, trading platform FalconX, as well as Solana CEO Anatoly Yakovenko.
The native SOL token is described in the lawsuit as a highly centralized cryptocurrency that benefits and yields only its insiders at the expense of retail investors.
"Defendants made huge profits by selling solan (SOL) securities to retail investors in the United States, in violation of the registration provisions of federal and state securities laws, and the investors suffered huge losses."
The lawsuit alleges that during the said period, which began on March 24, 2020, the defendants made intentionally misleading statements in relation to the total supply of SOL in circulation and denied the claims of decentralization.
“As of May 2021, insiders held 48 % SOL bids. The network is so highly centralized,”
The defendant has also reportedly spent a huge amount of money promoting SOL in the United States since April 2020, which has reportedly boosted its price to $258 per token and market capitalization to $77 billion as of November 5, 2021.
“These promotional efforts have taken SOL from a relatively obscure crypto-asset to one of the top crypto-assets in the world,” wrote Young.
The outcome of the lawsuit could have significant implications for Solana and the broader crypto industry. If SOL is recognized as a security, it could trigger a wave of lawsuits against similar tokens.
In the US, the most common method for determining whether an asset is a security is the Howey test, a common four-step framework based on a 1936 court case. To qualify as such, the asset must be an investment of money in a joint venture with the expectation of profit, based primarily on the efforts of others. The lawsuit alleges that SOL's investors invested money, participated in a joint venture, and purchased SOL's securities with the expectation of a profit.
The lawsuit may add to investor concerns also fueled by Solana's ongoing reliability issues. The network has suffered at least seven total or partial outages in the past 12 months. These outages were mentioned in the filing, with claims that they led to "huge losses for network users" as they caused a dramatic drop in SOL's business value.
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