Dfinity Foundation Wins Lawsuit Dismissing Claims It Artificially Inflated ICP Token Prices

A federal judge in California dismissed a class-action lawsuit that claimed the sale of unregistered securities.

A federal judge in California has dismissed a class-action lawsuit that accused the Dfinity Foundation of selling unregistered securities and artificially inflating the Internet Computer Protocol (ICP) token prices, reports Bloomberg.

The lawsuit, which was filed in August 2021 by investors who purchased ICP tokens after May 10, 2021, is being defended by the Dfinity Foundation, the creators of the Internet Computer Protocol. It was brought on behalf of all those who bought the token in the United States following the launch of public trading of ICP tokens by the decentralized open-source blockchain in February 2017.

According to court documents, the suit was "time-barred" as it was filed more than three years after the offering of ICP tokens began, and also missed the statute of limitations for filing claims of fraud.

The case was initially handled by the controversial law firm Roche Freedman, now known as Freedman Normand Friedland LLP, and later taken over by Selendy Gay PLLC. It focused on claims that Dfinity and its executives sold ICP tokens without registering them as securities, and also artificially inflated the asset's market and token prices.

The lawsuit also alleged that Dfinity founders and executives, including CEO Dominic Williams, necessarily knew about the alleged token distribution issues by virtue of their positions. However, Judge James Donato rejected that argument, stating that a company being found to have committed a wrongdoing does not necessarily mean that any of its employees were aware of such wrongdoing.

This brings attention to the high standard needed to prove violations of securities laws, which includes knowledge and intent. For fraud claims to succeed, plaintiffs must demonstrate that misleading statements were made and that the defendants had a deliberate intent to deceive investors. Without solid evidence to support these claims, courts are unlikely to rule in favor of investors.

Judge Donato's decision to dismiss the case was based on the statute of repose, which sets a strict time limit for filing claims, in contrast to the statute of limitations, which is often based on when the plaintiff first becomes aware of the violation.

The ruling comes after a fractious battle in court, with investors granted a final opportunity to amend their complaint by April 8. If they fail to meet the deadline, the case may be permanently dismissed under federal civil procedure rules.