Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340 (S.D.N.Y. 2019)

On March 31, 2019, the U. S. District Court for the Southern District of New York denied a motion to dismiss a putative class action complaint alleging that ATBCOIN LLC (“ATBCOIN”) and its co-founders and officers (Edward Ng and Herbert W. Hoover) violated Sections 12(a) and 15 of the Securities Act by selling unregistered securities.

From June 12, 2017, through September 15, 2017, ATBCOIN allegedly conducted an ICO of tokens called “ATB Coins” that raised proceeds worth more than US $20 million. ATBCOIN allegedly sought to raise capital so that it could create and launch the ATB blockchain on which the ATB Coins would operate. ATBCOIN allegedly promoted the ATB blockchain as “the fastest blockchain-based cryptographic network in the Milky Way galaxy,” and purchasers allegedly expected the value of ATB Coins to increase as more users adopted the ATB blockchain. When the ATB blockchain launched at the close of the ICO, however, it allegedly did not live up to the technological standards advertised, and the value of ATB Coins allegedly decreased dramatically.

The defendants moved to dismiss the complaint on the ground (among others) that ATB Coins were not securities under the Securities Act. Applying the test provided in SEC v. W.J. Howey Co., the court held that the complaint adequately alleged that ATB Coins were securities and that the sale of ATB Coins was an unregistered securities offering. The parties did not dispute that there had been an investment of money. The court found that there was a common enterprise because the ICO proceeds were “pooled together to facilitate the launch of the ATB Blockchain,” the success of which would determine the value of ATB Coins. The court also concluded that there was an expectation of profits to be derived solely from the efforts of others because the success of the ATB Coin was linked to the success of the ATB Blockchain, which was solely in the defendants’ control.

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