Dfinity’s highly-anticipated Internet Computer (CRYPTO: ICP) platform found itself amid a major controversy after a class-action lawsuit been filed in California describes it as an unregistered security.
What Happened: The complaint was filed on July 15 “on behalf of all investors who purchased Internet Computer Project tokens on or after May 10, 2021.”
The filing targets cryptocurrency hedge fund Polychain Capital, venture capital firm Andreessen Horowitz and Dfinity’s founder Dominic Williams as defendants in the lawsuit.
Internet Computer attempts to combine the high-speed data processing power of the internet with the security and trustlessness of blockchain technology by employing a novel consensus system based on queries and calls instead of the more familiar Cardano’s (CRYPTO: ADA) proof-of-stake and Bitcoin’s (CRYPTO: BTC) proof-of-work.
What’s ICP? With its claimed “unprecedented” capabilities, Internet Computer intends to compete not only with the likes of Ethereum (CRYPTO: ETH) but also with the cloud computing industry and most centralized services ranging from social media such as Facebook (NASDAQ:FB) to intermediaries such as Uber Technologies Inc. (NYSE:UBER).
This new cryptocurrency launched in May and found enough hype by market participants that its network is now worth $4.6 billion — it is the 21st biggest cryptocurrency.
The Lawsuit: A recent report by crypto intelligence firm Arkham Intelligence suggests that Internet Computer’s 90% price crash in its first month is unusual for a project with heavy institutional investment and support.
While a spokesperson for the project dismissed the paper as “ludicrous” in an email sent to an industry news outlet Decrypt, the document purportedly identified $2 billion of ICP being transferred by “probable insider addresses” to cryptocurrency exchanges at times coinciding with sharp price decreases.
In other words, the document suggests a probable “dumping” by people involved with the project.
The lawsuit filed in California alleges that 469,213,710 ICP tokens were “created out of thin air” and sold in violation of the 1933 Securities Act — thus suggesting that the tokens were unregistered securities.
According to the complaint, 24% of all the tokens were given to the defendants — with the biggest shares being directed at Polychain and Andreessen Horowitz.
Both the report and the class action lawsuit suggest that Dfinity has not been transparent about the allocation of its ICP tokens and rigged the system in a way that allowed insiders to profit at the expense of long-time supporters and small investors.