Insiders at Solana Profit While Retail Investors Lose Out, Lawsuit Claims

Solana's SOL is a security that has not been registered with regulation. As a result, its insiders profited on the backs of retail investors who did not profit from the investment, according to the suit.

A lawsuit filed in California federal court last week accuses key players in the Solana ecosystem of illegally profiting from SOL, the blockchain's native token that according to the suit is an unregistered security,

"The value of the SOL token comes from Solana Labs, the Solana Foundation, and [Anatoly] Yakovenko’s management and implementation of the Solana blockchain," the lawsuit said. It claimed that SOL is a highly centralized cryptocurrency that has enriched its insiders at retail traders' expense.

Mark Young, a California resident who claimed he bought SOL in late summer 2021, initiated the lawsuit against Solana Labs, the Solana Foundation and Anatoly Yakovenko. The suit also names Multicoin Capital and Kyle Samani of Multicoin as well as FalconX.

A Solana spokesperson did not respond to a request for comment. Multicoin and FalconX did not immediately reply when asked.

The complaint says that the way SOL was created and sold meets the three criteria of the Howey Test, a U.S. Supreme Court precedent often used to determine whether something is considered a security or not.

"Investors who bought SOL tokens have invested money or given valuable services to a common enterprise, Solana. These investors have a reasonable expectation of profit based on the efforts of the promoters, Solana Labs and the Solana Foundation, to build a blockchain network that will rival Bitcoin and Ethereum and become the accepted framework for transactions on the blockchain," as stated in the filing.

In the filing, Young pointed to several sales of the SOL token or agreements to sell the SOL token ahead of the public sale.

Solana Labs filed a Form D with the U.S. Securities and Exchange Commission (SEC) (a filing stating that the sale was of securities exempt from SEC registration), reporting that it was selling “the future rights” to around 80 million SOL, according to the filing.

The suit alleged that Multicoin, a major crypto venture capital firm that has invested heavily in the Solana ecosystem, "dumped" millions of dollars of SOL onto retail after "pushing" the token despite Solana blockchain's technical issues. The offload was carried out through FalconX OTC desks, the suit said.

Recently, Binance.US was sued by Young's law firm Roche Freedman for allegedly misleading investors during the Terra implosion. A lawyer from Roche Freedman did not respond to a phone call.