A Class-Action Lawsuit Against Solana Has Been Filed

A lawsuit has been brought by a shareholder against a number of significant players in the Solana ecosystem on the grounds that they profited from SOL at the expense of other shareholders.

A lawsuit has been filed in federal court in California against Solana Labs, the company behind the Solana blockchain, as well as a number of other important participants in the Solana ecosystem. The investor asserts that the defendants have been using SOL, the native token of the SOL blockchain, for illegitimate financial gain.

Solana Labs is accused of violating securities laws and running highly centralized operations.

A class-action lawsuit filed in a federal court in California accuses the main players in the Solana ecosystem of breaching the law on securities by disseminating unregistered securities. SOL, a highly centralized cryptocurrency, has benefited firm leaders at the expense of outside investors, the case claims. In the complaint, it is claimed:

“The management and application of the SOL blockchain by Yakovenko, Solana Foundation, and Solana Labs together form the basis of the value of SOL stocks. They also decided who would receive SOL securities and under what circumstances, as well as building the Solana blockchain network and all of the SOL securities currently in use.

Mark Young, a citizen of California, filed the case, which names Solana Labs, the Solana Foundation, co-founder Anatoly Yakovenko of Solana, Multicoin Capital, co-founder Kyle Samani, and trading platform FalconX as defendants. The lawsuit also names Mark Young as a defendant. Young claims to have purchased SOL in August and September of 2021.

Young claimed in the complaint that the three Howey Test tenets were upheld in the way SOL was developed and offered. The United States Supreme Court uses the Howey Test to decide whether a transaction meets the criteria for a “investment contract.” If so, the deal would be regarded as a security and would need to be disclosed and registered. As stated in the application,

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“Buyers of SOL securities have contributed capital or valuable services to a joint venture, Solana. Based on the promoters’ attempts to create a blockchain network that will compete with Bitcoin and Ethereum and become the standard framework for blockchain transactions, Solana Labs and the Solana Foundation, these buyers have a realistic expectation of profit.

Young’s claims are being pursued as a class action on behalf of Young and other SOL investors who bought the coin after March 24, 2020, according to a press release from the law firm Roche Freedman. In addition, the business has filed a lawsuit against Binance.US, alleging that the cryptocurrency exchange duped investors when the Terra ecosystem failed.

Whether or not Solana should be decentralized is up for debate

Young claimed that the Solana network is “extremely centralized,” in contrast to what Solana Labs claimed. According to Solana Labs, the network is decentralized. He said that as of May 2021, corporate insiders held a 48 percent stake in the SOL supply.

He also described the Solana disruptions as “devastating” in the complaint. SOL was brought offline for the seventh time in May, according to the reports. The network had two previous outages before this one, one that lasted for eighteen hours in September 2021 and one that lasted for five hours in December 2020. It was also the subject of a DDOS attack in the start of January.

The team would normally have to upgrade the network following an outage and then restart it to address the issue. Some members of the bitcoin community were leery about the project’s decentralized character even before the complaint was filed as a result of this.

At this point, it is unclear how the class-action lawsuit will turn out. The securities violation allegations, notably the one that Ripple has been dealing with, are akin to those that a significant number of other cryptocurrency companies have faced over the previous few years.

The SEC sued Ripple in December 2020 over claims that the company, its CEO Brad Garlinghouse, and its executive chairman Chris Larsen used the sale of XRP to illegally market securities. On the other hand, Ripple argues that XRP should be viewed more like a digital currency and less like a binding contract.

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