Alexander Clifford v. Bibox/BIX
Alexander Clifford v. Bibox/BIX

Alexander Clifford v. Bibox/BIX

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In re Bibox Grp. Holdings Ltd. Sec. Litig., 2021 U.S. Dist. LEXIS 74405, 2021 WL 1518328 (S.D.N.Y. April 16, 2021)

Type of Case: Civil Class Action

Jurisdiction: United States District Court for the Southern District of New York

Procedural History: Motion To Dismiss heard in the Southern District of New York

Facts:

In October 2017, Bibox launched a crypto-asset exchange and token.

In order to fund the development of the exchange, Bibox raised 19 million from it’s initial offering and also issued an Ethereum ERC-20 tokens, which it called the “Bibox Token” or “BIX.”  BIX exchange allows for five other tokens, EOS, TRX, OMG, LEND, and ELF, to operate on the Ethereum blockchain, and is offered for trading on the Bibox exchange. BIX’s implementation of blockchain technology was different from the blockchain technology used in other crypto-assets such as Bitcoin and Ethereum. The BIX tokens that Bibox offered to the public were created centrally, as opposed to via the decentralized mining process used for Bitcoin and Ethereum.

In 2018, the plaintiff traded in BIX on the Bibox exchange. In two separate transactions on June 10, 2018 and October 27, 2018, the plaintiff purchased BIX using bitcoin. On December 12,2018, the plaintiff sold BIX in exchange for bitcoin.  Plaintiff did not buy/sell all of the other tokens, EOS, TRX, OMG, LEND, and ELF available on the exchange.

Issue:

Plaintiff alleges that the six tokens at issue in this litigation qualify as securities under federal and state securities laws, and that Bibox violated federal and state law by selling the tokens without registering as an exchange or broker-dealer and without a registration statement in effect for the six tokens at issue.

The Complaint asserts that Bibox violated numerous federal statutes by:

  • offering for sale securities, namely the six tokens for which registration statements had not been filed with the SEC;
  • entering into contracts to buy and sell securities, namely the six tokens, on an unregistered exchange;
  • operating as an unregistered broker and dealer in connection with the six tokens;
  • that the individual Bibox defendants are subject to control and are personally liable for causing the sale of the six tokens on an unregistered exchange;
  • Selling BIX, a security, with false statements and omissions of material facts in its prospectus.

There were also one hundred and forty-eight claims being brought under the Blue Sky laws of all fifty states and the District of Columbia.

The damages sought fall into the following categories: 

  • to recover on behalf of all investors who purchased the six tokens on the Bibox exchange in the United States;
  • to recover on behalf of all persons who purchased BIX in the United States directly from the defendants;
  • to recover on behalf of all persons who purchased BIX in the United States from a third party.

Overall, the Plaintiff(s) either used the exchange or purchased BIX and they assert that they are entitled to damages because BIX was not properly registered as a security 

Legal Issues/Analysis:

Bibox and multiple tokens listed on their exchange claim that their tokens are not securities under the Howey test. The issuers also did not register the tokens as securities with the SEC.

These statutes include the Securities Act of 1933 (the “1933 Act”), 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C. § 78a

Standing:

The Court determined that main Plaintiff did not have standing because he had only purchased some of the tokens offered on the exchange, but the Complaint was attempting to recover damages for all of the tokens offered. Essentially the main Plaintiff and the other Plaintiff’s within the class did not have the EXACT same case and contresey. 

The defendants argue that the plaintiff lacks standing to pursue claims for a class arising from the five tokens described in the complaint that he did not purchase. They are correct.  Plaintiff did not allegee that he suffered any actual injury from the conduct of the defendants regarding the five tokens he did not purchase.

The plaintiff attempts to counter Defendant’s argument by stating  fact that their compliance with with ERC-20 application standards  means that they share a technological feature with the BIX token.  Sharing a trading platform, however, does not create a common set of concerns among all investors who purchased any alleged security on that exchange.

The plaintiff has standing to pursue this claim in connection with the sale of BIX, which he purchased, he does not have standing with respect to his claims connected to the sale of the other five tokens on the BIX exchange.

Statute of Limitations

The defendants have moved to dismiss the remaining claims, each of which arises from the plaintiff’s purchase of BIX, on the ground that the claims are barred by the statute of limitations.  The defendants argue that the plaintiff’s claims must be filed within at most one year of their accrual and therefore fall outside of the relevant limitations period.  The Court determined that ignorance of legal rights does not delay the accrual of a claim under a discovery rule.  For the following reasons, the motion to dismiss is granted.

Illinois Blue Sky Law

Plaintiff seeks to void his purchase of BIX pursuant to the civil remedy provision of the Illinois Blue Sky law.   In order to proceed with his claims under Illinois law, the plaintiff must have provided “notice” to “each person from whom recovery will be sought” within 6 months of acquiring “knowledge that the sale of the securities to him or her is voidable.”  Even if it could be assumed that the Framework provided the plaintiff with knowledge that his purchase of BIX was voidable, the publication of the Framework would not preserve this claim.  Plaintiff did not provide proper notice under Illinois Blue Sky Laws.

Conclusion:

This case stands for the prospect that blockchain/crypto/defi projects that do not register as a security will face legal scrutiny from their investors. That being said, this case does not provide any clarity regarding whether BIX should have registered as a security or whether their exchange should be liable for tokens that did not register as a security because the Plaintiff did not meet multiple procedural thresholds. 

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