Switzerland's cryptocurrency crush marred by US$1bil spat
GENEVA: All is not well in Crypto Valley.
One of the highest profile digital-currency projects in Switzerland, a country that’s been among the most enthusiastic advocates for cryptocurrencies, is under fire from both outsiders and insiders over allegations of false marketing and mismanagement, prompting its president to resign.
Now the Tezos Foundation, which raised US$232mil in an initial coin offering, is engaged in the most American of pursuits: a round of lawsuits.
The non-profit’s fundraising touted an all-new model for the blockchain technology that underpins cryptocurrencies.
A group of investors are claiming in California court that the entrepreneurs behind the offering misleadingly marketed the purchase of “Tezzie” tokens as part of a charitable contribution, which would leave investors with nothing if the project collapses.
Switzerland ranks second just behind the US in capital raised in ICOs, with most of the transactions done by foreigners flocking to Switzerland, according to a 2017 report by venture capital firm Atomico.
This case has broad implications for Switzerland’s future as a launching pad for ICOs.
“Will the judge accept the narrative that this was just like contributing to public radio and all you get is a tote bag, or was it an investment where everyone expected a return,” says Stephen Palley, a lawyer who runs the cryptocurrency practice at the firm of Anderson Kill in Washington.
“The structure was misused and the age of token entrepreneurs going to Switzerland to set up Swiss foundations is probably over.”
Securities and Exchange Commission chairman Jay Clayton last month said that ICOs will face fresh scrutiny as the market is probably full of fraud.
The SEC has issued a clutch of subpoenas to ICO operators as part of a broad crackdown.
The Tezos lawsuit “should give Swiss or other foreign entrepreneurs and enthusiasts pause if they are thinking about trying to raise funds for a US operation or from US investors using an ICO structure that doesn’t comply with the registration requirements of the Securities Act,” says Joel Fleming, a Boston lawyer who represents some of the plaintiffs.
At a hearing on March 15 in San Francisco, the investors are expected to consolidate their putative class-action lawsuits.
The legal action comes on top of a separate dispute between Tezos’s co-founders, a Franco-American couple named Kathleen and Arthur Breitman, and South African Johann Gevers, one of the pioneers behind Zug’s push to make itself a cryptocurrency hub.
The Breitmans have accused Gevers of mismanagement and conflicts of interest.
The stakes for the Tezos project have risen to more than US$1bil, the plaintiffs allege, as the value of the ether and Bitcoin tokens which were used to invest in the ICO in July has surged.