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Tezos raised $232 million in an 'initial coin offering' just months ago, but already investors are suing for fraud.
The plaintiffs say they have not received promised tokens amidst reports of infighting among organizers of the blockchain project. But if the class action succeeds, will the defendants pay up in cryptocurrency?
It's not a real question -- just like virtual currency is not real money. It begs some questions, however, like: Why did people give up so much real money to get digital coins?
Filed in the California Superior Court in San Francisco, the lawsuit alleges Tezos organizers violated U.S. securities laws and defrauded people in the company's online fundraiser.
The complaint names Kathleen and Arthur Breitman, co-founders of the Tezos project, and Johann Gevers, president of the Tezos Foundation, is also named as a defendant. According to reports, the individuals have been wrestling for control.
"The dispute has significantly delayed the venture, which aims to create a computerized network for transactions using blockchain technology," Reuters reported.
The plaintiffs want a refund and damages, but they may not get anything. In its ICO, Tezos advised the public that contributions might be deemed donations rather than investments.
"If that is the outcome of this ICO, Tezos may go down as one of the largest 'legitimate' scams in the history of ICOs," said JP Buntix of the Merkle.
Stephen Palley, a litigator watching the case, said the securities law allegations represent "a significant area of risk for ICO promoters." He told CoinDesk that other lawsuits may follow.
"In short, it's a complicated mess. I doubt that it will be resolved quickly, even if tokens are issued quickly," he said. "It's definitely not a great development for a new venture."
Since the advent of Bitcoin several years ago, there has been a frenzy for virtual currencies. Values have skyrocketed, plummeted and soared again.
Today, one Bitcoin is worth about $7,419.