Unikrn, a blockchain based gaming platform that is associated with some big name backers like Mark Cuban, has been hit with a lawsuit filed in the Superior Court of Washington for King County this week. The allegation that the Unikrn initial coin offering (ICO) constituted a sale of an unregistered security and thus violated the law.
According to the class action complaint;
“Despite characterizing UKG Tokens as “utility tokens” in later iterations of the White Paper, those tokens did not have any functionality at the time of the ICO, and Defendants knew they constituted securities, filing an SEC Form D Notice of Exempt Offering of Securities with the SEC (“Form D Notice”) for the sale of unregistered securities to accredited investors residing in the United States noting that the first sale took place on September 19, 2017, just days before the “official” ICO began on September 22, 2017. A copy of this Form D Notice is attached hereto as Exhibit A. Although the exemption under which Defendants filed is limited to sales to accredited investors, UKG Tokens were offered to the general public in the ICO.”
This is an interesting twist as Unikrn did file for a Reg D 506c securities exemption with the Securities and Exchange Commission. The security offered was a SAFT (simple agreement for future tokens). But part of the argument appears to be the fact that UKG Tokens traded on crypto exchanges soon after the initial coin offering and, allegedly, were directly, or perhaps indirectly, sold to non-accredited investors;
“During that ICO Defendants sold UKG Tokens to members of the general public throughout the United States and the world,” states the filing.
To date, most of the class action lawsuits filed against ICOs have been mainly for issuers who did not file a Form D with the SEC (or another exemption).
At the time of the Unikrn ICO, the company raised approximately $30,000,000 in ETH or 112,000 ETH which is worth around $33.5 million today – even as the price of ETH has tanked below $300. At one point in January 2018, ETH traded at over $1300.
Comparatively, UKG tokens are presently trading at around $0.049 each – a significant haircut from its all time high of over $2.00.
Unikrn benefitted from some serious celebrity glam. Investors in the company included not just Mark Cuban but other high profile investors including Ashton Kutcher, Elisabeth Murdoch, Shari Redstone, Pantera Capital, Blockchain Capital and many more, according to the filing. Additionally, big name ICO advocates such as Ian Balina touted UKG.
The complaint has been filed under the Plaintiff John Hastings who invested 10 ETH in the Unikrn ICO. Of course, the value of his investment has declined since that time and, in hindsight, the Plaintiff may have been better off holding onto his ETH. But then that is the nature of speculating in ICOs.
The demand includes a trial by jury along with a recission of the investment and compensatory damages. The law firm of Stritmatter has a long history of personal injury lawsuits and class action cases.
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