What’s Extraterritorial on the Blockchain?: “In re Tezos Securities Litigation” and the Application of U.S. Securities Law to “Foreign” ICOs

Alter_Daniel_web2_8784879218361Featured Expert Contributor—Legal & Regulatory Challenges for Digital Assets

By Daniel S. Alter, a Shareholder in the New York, NY office of Murphy & McGonigle P.C.

*Ed. Note: This is Mr. Alter’s inaugural post as the WLF Legal Pulse’s newest Featured Expert Contributor. Prior to joining Murphy & McGonigle P.C., Mr. Alter was General Counsel for the New York State Department of Financial Services.

In July 2017, the Tezos Foundation—a Swiss non-profit organization—conducted an online initial coin offering (or ICO) that raised more than $230 million in value.  The terms of sale purportedly governing the ICO contained a forum selection clause designating Switzerland as the exclusive forum for all ICO-related litigation and choosing Swiss law to govern disputes.  Soon after the ICO concluded, however, purchasers of Tezos tokens brought suits in U.S. federal district court against multiple defendants (including American and European individuals and entities) involved in managing the token sale.

The plaintiffs alleged that the defendants had sold unregistered securities in violation of §§ 12 and 15 of the Exchange Act of 1934 (“Exchange Act”).  15 U.S.C. §§ 77l, 77O.  Once the cases were consolidated, several defendants moved to dismiss the complaint arguing, among other things, that—because the Exchange Act does not apply to the extraterritorial sale of unregistered securities—a foreign ICO cannot give rise to federal liability.[1] Continue reading “What’s Extraterritorial on the Blockchain?: “In re Tezos Securities Litigation” and the Application of U.S. Securities Law to “Foreign” ICOs”