Class action lawsuit against
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Class action lawsuit against calls $4B ICO ‘biggest of all crypto frauds’

A lawsuit says the sale of EOS tokens ‘arises out of a fraudulent scheme, fueled by a global frenzy over cryptocurrencies and unchecked human greed’

Disgruntled investors have brought a class action lawsuit against, accusing the blockchain software firm of netting $4 billion through an illegal initial coin offering for an unregulated asset that became “virtually worthless.”

Court documents filed on May 18 in the U.S. District Court for the Southern District of New York allege the case “arises out of a fraudulent scheme, fueled by a global frenzy over cryptocurrencies and unchecked human greed.”

Class action lawsuit against
Class action lawyers say the EOS-creator preyed on crypto buyers (Photo: Hong v.

The Hong v. class action lawsuit is being brought on behalf of all individuals and organizations who bought or acquired EOS tokens from June 26, 2017 onward. Plaintiffs hope the new complaint will hold and its leadership accountable—claiming investors were deceived “in what may be the biggest of all crypto frauds.”

A spokesperson told Modern Consensus: “ is aware that career plaintiffs’ lawyers have filed a lawsuit in the US. The complaint is filled with false claims and demonstrates a profound lack of understanding of blockchain technology and decentralized networks. The company looks forward to addressing these matters and fully expects to prevail.”

Dueling class actions

Grant & Eisenhofer, the law firm that brought Hong v., is about a month and a half behind another class action lawsuit. On April 3, law firms Roche Cyrulnik Freedman and Selendy & Gay filed a class action suit —Williams v.—that also called the ICO an illegal, unregistered securities sale. It is one of 11 similar ICO suits the two firms filed that day.

Both Hong and Williams build on a settlement reached back in September with the Securities and Exchange Commission, resulting in a $24 million civil penalty.

Grant & Eisenhofer described this in a May 18 release as a “relative slap on the wrist that did little to promote investor protection,” given how it represents just 0.6% of the funds that were raised. It even claimed that this settlement “was only a tiny speed bump in what remains a successful scheme to defraud investors” given how the terms of the deal didn’t disqualify from future securities offerings and didn’t order compensation to be given.

In its year-long ICO from June 26, 2017 to June 4, 2018, the price of EOS ranged from less than $0.50 to more than $21, according to Messari. It is currently about $2.66.

In the dock

The Hong v. class action lawsuit alleges that the defendants—including current and former executives of­—breached their fiduciary duty, and that there was unjust enrichment.

It is claimed that 900 million EOS tokens were sold during the ICO as a result of “aggressive marketing to investors in the United States and other countries.”

According to Grant & Eisenhofer, the sale was heralded with great fanfare as prominent billboards lit up New York’s Times Square and a bullish white paper entered circulation—billing it as a “superior competitor” to the likes of Bitcoin and Ethereum. Yet, at the same time, it’s alleged that had failed to comply with U.S. securities laws by neglecting to register the offering with the SEC.

The “willful evasion of regulations” meant ICO investors could not receive disclosures about its financial history and risk factors. “In essence, the complaint alleges, made a wildcard coin offering that profited the company handsomely but ultimately left investors holding little more than crypto dust,” the law firm added.

Although the SEC issued a cease-and-desist order against any further sale of the company’s tokens in September 2019, Grant & Eisenhofer claims that this took investors by surprise. “At no time had the company disclosed that it was subject of a government investigation,” it said.

“Investors of all types deserve to be treated equitably and honestly,” Grant & Eisenhofer director Daniel Berger said. “This lawsuit is an important means to redress the brazenly unlawful conduct that exhibited in defrauding investors through its EOS token offering.”

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.