Jan 3, 2018 | Consumer Protection, Employment & Technology Archive
Urban Outfitters Overtime Lawsuit – Plaintiff Department Manager Allegedly Misclassified as Exempt Under Federal Overtime Laws
On December 27, 2017, an overtime lawsuit was filed in United States District Court, Eastern District of Virginia, Norfolk Division, by Plaintiff Joshua Allison for misclassifying him as exempt under federal overtime laws and failing to pay Plaintiff for all hours worked, as well as overtime pay for hours worked beyond 40 in a workweek.
The Plaintiff, according to the complaint, served as a Department Manager for Urban Outfitters from approximately July 2012 until April 2013 in Norfolk Virginia and in Savannah, Georgia from April 2013 until October 2013.
Urban Outfitters Overtime Lawsuit – Overtime Lawsuit Allegations
The Plaintiff in the Urban Outfitters overtime lawsuit alleges that he is entitled to 1) unpaid wages from Urban Outfitters for all hours he worked, as well as for overtime worked for which he did not receive premium pay; and 2) liquidated damages pursuant to the Fair Labor Standards Act (“FLSA”).
Urban Outfitters Overtime Lawsuit – Overtime Lawsuit’s Statement of Facts
According to the complaint:
As a Department Manager, Plaintiff’s work was performed in the normal course of Urban Outfitters’ business and was integrated into it.
Plaintiff regularly worked in excess of forty hours per workweek without receiving overtime compensation.
Defendant scheduled Plaintiff to work 40 hours per week, but Plaintiff worked an average of approximately 55-65 hours per week during each week in which he worked five or more shifts.
Urban Outfitters assigned all of the work that Plaintiff performed or was aware of it.
Plaintiff’s work required little skill or capital investment and did not include the exercise of meaningful independent judgment and discretion.
Urban Outfitters Overtime Lawsuit – “Subordinate” Department Managers
According to the Urban Outfitters overtime lawsuit complaint, Urban Outfitters’ Form 10-K for the fiscal year ended January 31, 2016, “all but admits that [Urban Outfitters’] stores are run by their store managers, and the Department Manager position is treated as a subordinate one, on the level of staff.”
According to the complaint, Urban Outfitters’ Form 10-K states the following:
We have organized our retail store operations by brand into geographic areas or districts that each have a district manager. District managers are responsible for several stores and monitor and supervise individual store managers. Each store manager is responsible for overseeing the daily operations of one of our stores. In addition to a store manager, the staff of a typical store includes a combination of some or all of the following positions: a visual manager, several department managers and full and part-time sales and visual staff.
Urban Outfitters Overtime Lawsuit – Plaintiff’s Duties as an Urban Outfitters’ Department Manager
According to the overtime lawsuit complaint:
The Plaintiff’s primary duties as a Department Manager included manual labor (e.g., cleaning the store, folding clothes, building displays, unloading freight). The Plaintiff’s job duties did not include supervisory tasks such as hiring, firing, disciplining or exercising meaningful independent judgment and discretion.
Urban Outfitters, pursuant to a centralized, company-wide policy, pattern and/or practice, classified the Plaintiff and all Department Managers as exempt from the overtime provisions of the FLSA.
Urban Outfitters, as part of its regular business practice, intentionally, willfully, and repeatedly engaged in a policy, pattern, and/or practice of violating the FLSA with respect to Plaintiff, a policy and pattern or practice which, according to the complaint, included, but was not limited to, willfully misclassifying Plaintiff as exempt from the overtime requirements of the FLSA; and willfully failing to pay Plaintiff overtime wages for hours worked in excess of 40 hours per workweek.
Further, as it pertains to the named Plaintiff, Urban Outfitters failed to maintain accurate and sufficient time records; had a policy and/or practice that only allowed the Plaintiff to report a maximum of 40 hours worked per week.
Urban Outfitters Overtime Lawsuit – FLSA Violations
According to the Urban Outfitters overtime lawsuit complaint, the Plaintiff seeks, among other things, an award of unpaid wages for all hours worked in excess of 40 hours in a workweek at a rate of one and one-half times the regular rate of pay due under the FLSA, as well as an award of liquidated and/or punitive damages as a result of Urban Outfitters’ willful failure to pay for all hours worked in excess of 40 in a workweek at a rate of time and one-half the regular rate of pay.
Image: “Urban Outfitters, Belfast, June 2010,” Ardfern (Own Work), CC BY-SA 3.0
Urban Outfitters Department Managers
If you served as a Department Manager for Urban Outfitters and wish to discuss whether you may have legal claims with an attorney, please complete the form above on the right or contact Michael Yarnoff, Esq., (215) 792-6676, Ext. 804, [email protected], or send an e-mail to [email protected].
Jan 2, 2018 | Consumer Protection, Employment & Technology Archive
Goodyear G159 Motor Home Tires – National Highway Traffic Safety Administration Probe
NHTSA Investigation to Determine Whether Some Older Goodyear Motor Home Tires Can Fail and Cause Accidents or Deaths
On January 2, 2017, The New York Times reported a story (“Regulators Open Probe of Goodyear Motor Home Tires Failures”) which stated:
U.S. safety regulators are investigating whether some older Goodyear motor home tires can fail and cause crashes and possibly deaths.
The National Highway Traffic Safety Administration says it began the probe after a court ordered the release of Goodyear data from lawsuits, which had been sealed under court orders and confidential settlement agreements.
According to the data, the G159 tires failed while in use, resulting in deaths and injuries. The agency says in documents posted Jan. 1 that the number of claims suggests the failures could be caused by a safety defect. Goodyear wasn’t required to report many of the claims to NHTSA under federal law.
Goodyear G159 Motor Home Tires – 40,000 Tires from 1996-2003
According to the aforementioned news article:
The investigation covers about 40,000 tires from 1996 to 2003.
The agency also received 10 complaints of tire failure, including two that caused crashes. The documents say Goodyear reported nine claims to the agency involving one death and 13 injuries. Some of those filing claims allege the G159 tires were not designed for extended highway use on motor homes.
Goodyear G159 Motor Home Tire Failures – “Finally Dragged Into the Public Eye”
Research disclosed a June 29, 2010 safetyresearch.net posting, “Goodyear G159 Tire Failures on RVs Finally Dragged Into the Public Eye,” which stated the following:
Goodyear’s G159 and a Class-A Motor Home was always a bad match. The tire was designed for urban delivery vehicles and speed-rated for only 65 mile per hour continuous use. Nonetheless, Goodyear had marketed the G159 to the RV industry for nearly a decade in the 1990s and 2000s, even though the tire design was prone to overheat on RVs that typically travel at greater speeds for extended periods. Goodyear knew it was dangerous for motor homes, but didn’t want [to] lose a market segment. So, in 1998, after speed limits increased nationwide, Goodyear bumped the speed rating of the G159 to 75 miles per hour.
By 1999, there had been two recalls and one Product Service Bulletin to replace G159 tires on RVs, but the recalls blamed inadequate load margin and customer misuse, and did not identify the tire design itself as defective. In fact, Goodyear has consistently assured the public that the tires are safe for all uses.
That claim was officially refuted . . . in a Pasco County, Florida Circuit Court, when the jury in Schalmo v. Goodyear handed the tiremaker 5.6 million reasons to stop insisting that a G159 was okay to install on an RV. The jury found that the Goodyear Tire & Rubber Company had sold a defective tire marketed to recreational motor home manufacturers, even though the tire was not suitable for RV use.
. . .
A failed Goodyear G159 was the cause of an August 11, 2004 crash that seriously injured the driver and two occupants. The tire was original equipment on a 2000 American Tradition motor home owned by John Schalmo of Port Richey, Florida. Schalmo was heading westbound on State Road 8 in Chipley, when the right-front tire of his motor home suffered a catastrophic tread separation. Schalmo lost control of the RV and veered off the right side of the roadway, heading out of control across an exit ramp and into a line of trees. Schalmo, and his wife’s parents William and Ruth McClintock, were seriously injured. William McClintock lost both legs as a result of the crash; he died of unrelated causes two years before the trial.
This was the first G159 tire case to be resolved in a public trial. Goodyear has quietly settled as many as a dozen G159 tread separation cases involving serious injuries and deaths, in exchange for confidentiality. The Schalmo and McClintock families refused to agree to a confidential settlement, and have expressed their hope that Goodyear will recall the tire.
. . .
In a 2006 Fleet Owner magazine feature, a Goodyear marketing communications manager acknowledged that the G159 was a truck tire that had not been developed for RVs. That same year, Goodyear stopped selling the G159 and replaced it with a more robust tire specifically designed for motor home use. But Goodyear has never recalled the all of the G159 tires already sold, and tens of thousands or perhaps more remain in the field.
Safety Issues & Recalls – Consumer Resource
Consumers can access the NHTSA’s “Safety Issues & Recalls” page to check VINs, vehicles, car seats, tires, and equipment by clicking here.
Jan 2, 2018 | Securities Class Action Archive
Apple Class Action Lawsuits & Apple’s Recent Apology Letter
A Newburgh Gazette article, “Apple Faces at least 12 different class-action lawsuits over iPhone slowdowns,” reported that Apple has issued a letter addressing the iPhone slowdown “controversial practice . . . created to offset errors caused by the aging batteries inside” iPhones.
According to Apple’s December 28, 2017 letter, “A Message to Our Customers about iPhone Batteries and Performance”:
We’ve been hearing feedback from our customers about the way we handle performance for iPhones with older batteries and how we have communicated that process. We know that some of you feel Apple has let you down. We apologize. There’s been a lot of misunderstanding about this issue, so we would like to clarify and let you know about some changes we’re making.
Apple’s letter also addressed how batteries age, preventing unexpected shutdowns, recent user feedback, and how Apple is addressing customer concerns. Apple’s letter also included a link to a new customer support page, “iPhone Battery and Performance.”
Apple Class Action Lawsuits – iPhone Slowdowns & Apple’s “Stark Reversal”
The Newburgh Gazette story also reported:
Earlier this month, users began noticing how their iPhones were slowing down over time, with benchmarking service Geekbench later concluding from its data that after iOS 10.2.1 previous year the iPhone 6, 6s, and SE encountered slow downs.”
. . . Apple said it’s been hearing the feedback. It’s a stark reversal for a company that once said iPhone users would never need to replace their batteries, and for a company that has always been suspected of slowing down their products to encourage users to upgrade to newer devices. While the company should address this problem by making the battery replacement free, we’ll acknowledge that cutting $50 off the out-of-warranty replacement fee is a step forward, at least. However, starting next month, Apple will offer a lower price: $29.
More recently with the introduction of iOS 11.2.0 similar throttling was discovered for iPhone 7 models with older batteries.
This means the price has dropped down from $79 to $29, and an iOS software update providing updates on iPhone battery health in early 2018 – though details on exactly how that will work have yet to be announced.
And the Newburgh Gazette story reported about multiple lawsuits Apple now faces “for not disclosing what it knew about its software updates ahead of time.”
Apple Class Action Lawsuits – Software Updates & Deliberate Slowdown of Older-Model iPhones To Make Batteries Last Longer
A Los Angeles Times story referenced in the Newburgh Gazette article, “Apple faces class-action lawsuits over slowed-down iPhones,” reported
iPhone owners from several states have filed at least nine class-action lawsuits against Apple Inc. for not disclosing sooner that its software updates deliberately slowed down older-model phones so batteries would last longer.
The lawsuits — filed in U.S. district courts in California, New York and Illinois — allege that Apple’s silence led the iPhone owners to wrongly conclude that they had to buy newer, pricier iPhones instead of simply replacing the battery.
Three of the lawsuits were filed by Los Angeles-area residents. One accuses Apple of fraud through concealment and unfair business practices. Another accuses Apple of breaching an implied contract — that is, it argues that when people buy iPhones, they do so with the assumption that Apple won’t “purposefully interfere with” the phones’ “usage or value.” The lawsuit says Apple did not get iPhone owners’ consent before meddling with the phones’ speed. The third alleges a slew of misdeeds, including fraud, false advertising and unjust enrichment.
. . .
The lawsuits came after Apple confirmed last week what high-tech sleuths outside the company had already observed: The company deployed software to slow some phones. Apple said the software was intended as a fix to deal with degraded lithium-ion batteries that could otherwise suddenly die. [Emphasis added]
Image: Pixabay, kropekk_pl, CC0 1.0 Universal
Apple Class Action Lawsuits – Apple iPhone Owners
If you own an iPhone 6, iPhone 6S, iPhone SE or iPhone 7 which was upgraded to iOS 10.2.1, or a later version, and have questions about your potential legal rights, please fill out the form above on the right or send an e-mail to [email protected]. For additional information, please click here or here.
Jan 1, 2018 | Shareholder & Investor Protection
ATBCoin Initial Coin Offering – Class Action Lawsuit Filed for Violation of the Securities Act of 1933
On December 21, 2017, a class action lawsuit was filed in United States District Court, Southern District of New York, against ATBCoin LLC, Edward Ng, and Herbert W. Hoover for violations of the Securities Act of 1933 in connection with the ATBCoin Initial Coin Offering, during which ATBCoin Defendants raised over $20 million in digital cryptocurrencies by offering and selling alleged unregistered securities.
ATBCoin Initial Coin Offering – “ATB Coin” Cryptocurrency ICO Sought to Raise Millions
According to the ATBCoin class action complaint, between approximately June 12, 2017 and approximately September 15, 2017, ATBCoin Defendants received more than $20 million in digital currency investments in exchange for ATB Coins. A press release cited in the class action complaint (“ATB Coin Cryptocurrency ICO Now Underway Across The Globe Company Offers Investors a Unique Opportunity”) stated:
With the wildly successful captivating press about ATB Сoin’s U.S. introductory launch last Thursday, the company’s Management Team is reporting over $12 million has been raised within the first fifteen minutes of the cryptocurrency’s highly-anticipated ICO.
According to CEO Edward Ng, the company’s technologically revolutionary cryptocurrency has already attracted excited investors from the United States, Canada, and China. Edward Ng further elaborated the company is pleased with such a high level of interest and optimism from investors; adding that the ICO will be ongoing for the next four weeks, with a targeted amount of $50 million. [Emphasis added]
ATB Сoin’s ambitious plans for global growth are already in place and are moving forward. This cryptocurrency is developed with the world’s most advanced protocols built-in such as SegWit, Lightning Network, and Smart Contracts. Borderless micro payment transactions are recorded in as little as microseconds. “Our team is well-positioned to move forward with our intermediate goal of opening offices across the U.S., Canada, Latin America, and Asia,” said Herbert W. Hoover III, ATB Coin co-founder.
Details of ICO: Crowdfunding of ATB Coin tokens began June 12, 2017 and will continue for the next four consecutive weeks. Potential investors are offered bonuses up to 10%, which will motivate an investor for an additional capital investment. Altogether, the maximum tokens issued will number 33 million, of which 50 million will be assigned to the Crowdfunding ICO.
ATBCoin Initial Coin Offering – ICO Amount Raised Uncertain
Although the total amount raised during the ATBCoin Initial Coin Offering has not, according to the class action complaint, been publicly stated by the ATBCoin Defendants, ICO-related websites estimate that the ATBCoin Initial Coin Offering raised between $20,400,000 and $24,210,000.
ATBCoin Initial Coin Offering – The ICO’s Declared Purpose
According to the ATBCoin class action complaint:
The purported primary purpose of the ATB [Initial Coin Offering] was to raise capital to create and launch a new blockchain that would “deliver blazing fast, secure and near-zero cost payments to anyone in the world.”[] Defendants claimed this network, which was to launch on September 1, 2017, would be “the fastest blockchain-based cryptographic network in the Milky Way galaxy.”[] Defendants actually launched the “ATB Blockchain” on September 14, 2017. It is hardly the “fastest . . . in the Milky Way galaxy.” Rather, adoption of ATB Coin and the ATB Blockchain has been essentially nonexistent, and the value of ATB Coins has continuously fallen.[] [Emphasis added]
ATBCoin Initial Coin Offering – ATBCoin Touts an Investment Opportunity
According to the ATBCoin class action complaint:
The [ATBCoin] Defendants . . . made numerous public statements touting the ATB [Initial Coin Offering] and ATB Coins as investment opportunities. For example, on July 9, 2017, Defendants issued a press release entitled, “PR: Over 5,500 People Choose to Invest in ATB Coin.”[] This press release concluded with: “Only 3 days left before the launch of ATB Coin! Invest in the cryptocurrency of the future, while the project offers the most favorable terms!” [Emphasis added]
The aforementioned press release also stated:
At the moment, over 5,500 people from all over the world have made investments in ATB Coin. The number of investors continues to increase with each passing hour. To support the project, an amount exceeding $15,800,000 has already been collected. ATB Coin’s affiliate network also continues to grow. The company enters into partnership agreements with crypto-exchanges, payment systems and services. The recent participation in IV International Blockchain Summit-2017 brought the project even more contacts of potential partners.
Currently, the 2nd stage of ATB Coin ICO started, lasting until the official blockchain network launch, which is scheduled for September 1st. The first round of the second stage of ICO, during which investors may receive a 20% bonus, was completed. The 3rd round of ICO will last until August 31th. Anyone who joins the project within this time limit will receive a 10% bonus of the invested amount on their account. [Emphasis added]
ATBCoin Initial Coin Offering – An Alleged “Clear Offer and Sale of Securities”
According to the class action complaint:
The core offer during the ATB [Initial Coin Offering] was 1 ATB Coin for $1, payable in Bitcoin (“BTC”), Ether (“ETH”), Litecoin (“LTC”), and potentially other cryptocurrencies. However, there are indications that the offer was modified throughout the ICO. For example, the offer in August 2017 appears to have been 1 ATB Coin for $1.5, payable in BTC, ETH, or LTC.[] Further, in September 2017, the offer was 1 ATB Coin for $2.5, also payable in BTC, ETH, or LTC.
The ATB [Initial Coin Offering] was a clear offer and sale of securities because, inter alia, Defendants touted, and Plaintiff and other ATB ICO investors reasonably expected, that the ATB Coins received in exchange for their investments would be worth more than the ETH, BTC, LTC, or other currencies invested. Additionally, . . . Defendants have explicitly referred to the ATB [Initial Coin Offering] participants as “investors” and repeatedly stressed the profit potential from holding ATB Coins. [Emphasis added]
. . .
Due to the varied and innumerable ways in which investors can be, and are likely to be, manipulated and harmed absent any of the protections under the federal securities laws, Sections . . . of the Securities Act provide for strict liability against any person who offers or sells an unregistered security. As detailed [in the complaint], the ATB [Initial Coin Offering] was, and has at all times been, an offer and sale of unregistered securities, and [the ATBCoin] Defendants are therefore strictly liable under . . . the Securities Act. [Emphasis added]
ATBCoin Initial Coin Offering – ATBCoin Price Plunge
A ccn.com story, “ATBCoin Hit With Class-Action Lawsuit After $20 million ICO,” reported that
[a]ccording to an estimate from ICO tracker CoinSchedule, the ATBCoin token sale raised $20.4 million worth of bitcoin, ether, and litecoin during its ICO, which ran from June through September.
However, to the chagrin of investors, the value of ATBCoin price has plunged from a high of $1.52 shortly after the ICO to less than $0.48 at the time of writing, even as the values of the coins used to contribute to the ICO have surged. [Emphasis added]
Image: Pexels, David McBee, CC0 1.0 Universal
Cryptocurrency & Initial Coin Offering Investors
If you are a cryptocurrency or Initial Coin Offering investor with questions or concerns about your potential legal claims or rights and wish to speak privately with a securities attorney, please complete the form above on the right or e-mail [email protected].
For more ICO-related information, please click Initial Coin Offerings and Cryptocurrency & Initial Coin Offerings.
Dec 31, 2017 | Shareholder & Investor Protection
Cryptocurrency & Initial Coin Offerings – SEC Chairman’s “Statement on Cryptocurrencies and Initial Coin Offerings”
On December 11, 2017, SEC Chairman Jay Clayton issued a “Statement on Cryptocurrencies and Initial Coin Offerings.” The statement provided the SEC Chairman’s general views on the cryptocurrency and ICO markets and, among other things, important considerations for “Main Street” investors involved with cryptocurrency- and ICO-related investments.**
Image: Pixabay, Gerd Altmann (geralt), CC0 1.0 Universal
Select Highlights of the SEC Chairman’s Statement Regarding Cryptocurrency and Initial Coin Offerings
The cryptocurrency and Initial Coin Offering markets have grown rapidly. The cryptocurrency and Initial Coin Offering markets are local, national and international and include an ever-broadening range of products and participants. The cryptocurrency and ICO markets also present investors and other market participants with many questions, such as:
- Is the product legal?
- Is it subject to regulation, including rules designed to protect investors?
- Does the product comply with those rules?
- Is the offering legal?
- Are those offering the product licensed to do so?
- Are the trading markets fair?
- Can prices on those markets be manipulated?
- Can I sell when I want to?
- Are there substantial risks of theft or loss, including from hacking?
Cryptocurrency & Initial Coin Offerings – Considerations for “Main Street” Investors
A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.
Investors should understand that, to date, no initial coin offerings have been registered with the SEC. The SEC also has not, to date, approved for listing and trading any exchange-traded products (e.g., ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If any person today tells you otherwise, be especially wary.
The CFTC has designated bitcoin as a commodity. Fraud and manipulation involving bitcoin traded in interstate commerce are appropriately within the purview of the CFTC, as is the regulation of commodity futures tied directly to bitcoin. That said, products linked to the value of underlying digital assets, including bitcoin and other cryptocurrencies, may be structured as securities products subject to registration under the Securities Act of 1933 or the Investment Company Act of 1940.
Cryptocurrency & Initial Coin Offerings- Investors: Ask Questions & Get Clear Answers!!
Questions for Investors Considering Cryptocurrency or ICO Investments
- Who exactly am I contracting with?
- Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product? Do they have a clear written business plan that I understand?
- Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sell the product? Have they been paid to promote the product?
- Where is the enterprise located?
- Where is my money going and what will be it be used for? Is my money going to be used to “cash out” others?
- What specific rights come with my investment?
- Are there financial statements? If so, are they audited, and by whom?
- Is there trading data? If so, is there some way to verify it?
- How, when, and at what cost can I sell my investment? For example, do I have a right to give the token or coin back to the company or to receive a refund? Can I resell the coin or token, and if so, are there any limitations on my ability to resell?
- If a digital wallet is involved, what happens if I lose the key? Will I still have access to my investment?
- If a blockchain is used, is the blockchain open and public? Has the code been published, and has there been an independent cybersecurity audit?
- Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
- What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects? Who will be responsible for refunding my investment if something goes wrong?
- If I do have legal rights, can I effectively enforce them and will there be adequate funds to compensate me if my rights are violated?
As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.
Image: Pixabay, Gerd Altmann (geralt), CC0 1.0 Universal
Cryptocurrency & Initial Coin Offerings – Cryptocurrencies, ICOs & Securities Registration
Cryptocurrencies. Cryptocurrencies purport to be items of inherent value (similar, for instance, to cash or gold) that are designed to enable purchases, sales and other financial transactions. They are intended to provide many of the same functions as long-established currencies such as the U.S. dollar, euro or Japanese yen, but do not have the backing of a government or other body.
Although the design and maintenance of cryptocurrencies differ, proponents of cryptocurrencies highlight various potential benefits and features of them, including (1) the ability to make transfers without an intermediary and without geographic limitation, (2) finality of settlement, (3) lower transaction costs compared to other forms of payment and (4) the ability to publicly verify transactions. Other often-touted features of cryptocurrencies include personal anonymity and the absence of government regulation or oversight. Critics of cryptocurrencies note that these features may facilitate illicit trading and financial transactions, and that some of the purported beneficial features may not prove to be available in practice.
It has been asserted that cryptocurrencies are not securities and that the offer and sale of cryptocurrencies are beyond the SEC’s jurisdiction. Whether that assertion proves correct with respect to any digital asset that is labeled as a cryptocurrency will depend on the characteristics and use of that particular asset.
Initial Coin Offerings. Coinciding with the substantial growth in cryptocurrencies, companies and individuals increasingly have been using initial coin offerings to raise capital for their businesses and projects. Typically, these offerings involve the opportunity for individual investors to exchange currency such as U.S. dollars or cryptocurrencies in return for a digital asset labeled as a coin or token.
These offerings can take many different forms, and the rights and interests a coin is purported to provide the holder can vary widely. A key question for all ICO market participants: “Is the coin or token a security?” As securities law practitioners know well, the answer depends on the facts. For example, a token that represents a participation interest in a book-of-the-month club may not implicate our securities laws, and may well be an efficient way for the club’s operators to fund the future acquisition of books and facilitate the distribution of those books to token holders. In contrast, many token offerings appear to have gone beyond this construct and are more analogous to interests in a yet-to-be-built publishing house with the authors, books and distribution networks all to come. It is especially troubling when the promoters of these offerings emphasize the secondary market trading potential of these tokens. Prospective purchasers are being sold on the potential for tokens to increase in value – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering.
By and large, the structures of initial coin offerings that the SEC Chairman has seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of the U.S. federal securities laws. Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved.
It is possible to conduct an ICO without triggering the SEC’s registration requirements. For example, just as with a Regulation D exempt offering to raise capital for the manufacturing of a physical product, an initial coin offering that is a security can be structured so that it qualifies for an applicable exemption from the registration requirements.
Cryptocurrency & Initial Coin Offerings – SEC-Related Alerts, Bulletins & Statements
The SEC has issued the following investor alerts, bulletins, and statements on initial coin offerings and cryptocurrency-related investments, including those related to the marketing of certain offerings and investments by celebrities and others:
Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others (Nov. 1, 2017), available at https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos
Investor Alert: Public Companies Making ICO-Related Claims (Aug. 28, 2017), available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims
Investor Bulletin: Initial Coin Offerings (July 25, 2017), available athttps://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings
Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014), available athttps://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-bitcoin-other-virtual-currency
Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013), available at https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf.
See also Kehoe Law Firm’s “Initial Coin Offerings – Be Aware of Potential Initial Coin Offering Risks” posting providing information from the SEC’s Office of Investor Education and Advocacy.
Cryptocurrency & Initial Coin Offerings – SEC Enforcement Actions
Press Release, Company Halts ICO After SEC Raises Registration Concerns (Dec. 11, 2017), available at https://www.sec.gov/news/press-release/2017-227
Press Release, SEC Emergency Action Halts ICO Scam (Dec. 4, 2017), available at https://www.sec.gov/news/press-release/2017-219
Press Release, SEC Exposes Two Initial Coin Offerings Purportedly Backed by Real Estate and Diamonds (Sept. 29, 2017), available at https://www.sec.gov/news/press-release/2017-185-0.
**The SEC Chairman’s statement contained a footnote which stated that the information in the SEC Chairman’s statement is his own and does not reflect the views of any other Commissioner or the Commission. Further, the SEC Chairman’s statement is not, and should not be taken as, a definitive discussion of applicable law, all the relevant risks with respect to these products, or a statement of the SEC Chairman’s position on any particular product. Additionally, the SEC Chairman’s statement is not a comment on any particular submission, in the form of a proposed rule change or otherwise, pending before the SEC.
Source: “Statement on Cryptocurrencies and Initial Coin Offerings” (December 11, 2017) by SEC Chairman Jay Clayton, available at https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11#_ftn6 (last accessed 12.31.2017).
Cryptocurrency (“Bitcoin”) & Initial Coin Offering Investors
If you are an investor of cryptocurrency (e.g., Bitcoin) or Initial Coin Offerings and have concerns about your legal rights or potential legal claims and wish to speak privately with a securities attorney, please complete the form above on the right or e-mail [email protected].
