A United States federal court has taken a significant step by allowing a nearly three-year-long class-action lawsuit to advance against the creators of HelbizCoin.
The case was initially initiated in 2020 against Helbiz, its CEO Salvatore Palella, and its associates. An amended complaint was subsequently filed in March 2022.
The lawsuit revolves around an Italian electric scooter-sharing firm known as HelBiz, which conducted an Initial Coin Offering (ICO) in 2018, raising $38.6 million and issuing an ERC-20 token in collaboration with Anthony Di Iorio, one of Ethereum’s co-founders, as alleged in the complaint.
The class-action lawsuit comprises a group of investors, potentially numbering as many as 20,000, who contend that HelbizCoin was involved in a deceptive “rug pull” and a fraudulent “pump-and-dump” scheme.
Investors assert that Helbiz made false statements and commitments to entice individuals into acquiring the tokens, with the majority of the ICO funds purportedly retained by the company.
One significant finding in the case is that the ERC-20 token is classified as a security under federal law, as stated by the investors’ attorney, Michael Kanovitz.
The categorization of HelbizCoin as a security under federal law introduces a substantial layer of intricacy to this legal battle.
U.S. Court Ruling Designates HelbizCoin as a Security, Significantly Affecting Cryptocurrency Regulation
Initially, the case encountered hurdles when a lower court judge dismissed it in January 2021, citing a 2010 Supreme Court precedent that restricted the reach of federal securities laws beyond U.S. borders.
However, in October 2021, the case gained fresh momentum when the 2nd U.S. Circuit Court of Appeals deemed the lower court judge’s decision erroneous. An amended complaint was subsequently filed in March 2022.
The appeals court questioned the lower court’s assertion that it lacked jurisdiction to scrutinize Helbiz Inc.’s $38.6 million initial coin offering. This challenge was rooted in the argument that the coins were neither listed on a U.S. exchange nor purchased domestically.
It’s important to note that this decision did not address the substance of the lawsuit but had the potential to impact cryptocurrency companies attempting to evade U.S. legal accountability by asserting foreign operations and fundraising.
Initially, U.S. District Judge Louis Stanton in Manhattan dismissed the lawsuit in January, citing the 2010 Supreme Court precedent.
However, the Manhattan appeals court suggested that a more “tailored” approach should have been taken, evaluating the investors’ claims under New York state law and its extraterritorial application.
The court also permitted investors to revise their complaint, showcasing one plaintiff as a Texan citizen who domestically acquired HelbizCoin, thereby bolstering their claims under federal securities law.
Fast forward to September 1, 2023, when the U.S. District Court for the Southern District of New York delivered its ruling on the HelbizCoin case. In this ruling, the court made several pivotal determinations. It partially favored the investors by granting some motions to dismiss while denying others.
Specifically, claims against certain defendants, including Paysafe, Skrill, Decentral, and Alphabit, were dismissed due to a lack of personal jurisdiction over these entities.
Furthermore, some claims against the remaining defendants, encompassing breach of contract, tortious interference, and specific securities claims, were also dismissed for failing to substantiate a valid claim.
However, Judge Louis Stanton’s ruling did validate certain claims advanced by the investors. The court determined that the plaintiffs had adequately alleged claims related to fraud, price manipulation, violations of securities laws, commodities laws, the RICO (Racketeer Influenced and Corrupt Organizations) Act, and unjust enrichment against specific defendants.
