In a significant legal development, a United States federal Court has given the green light to a class-action lawsuit against the creators of HelbizCoin. This lawsuit, which has been ongoing for nearly three years, alleges fraudulent activities and violations of securities laws by the Italian electric scooter-sharing company HelBiz and its partners. 

The case centres around an initial coin offering (ICO) conducted by HelBiz in 2018, during which it raised $38.6 million and issued an ERC-20 token involving one of Ethereum’s founders, Anthony Di Iorio. This article delves into the court’s recent decision, the background of the case, and its implications for the cryptocurrency industry.

Background of the lawsuit

The class-action lawsuit against Helbiz, its CEO Salvatore Palella, and associated partners was initially filed in 2020 and later amended in March 2022. The case’s core revolves around HelbizCoin, which investors claim was a fraudulent scheme characterized as a “rug pull” and a “pump-and-dump” operation. Investors, numbering as many as 20,000, contend that Helbiz made false statements and promises to induce people to purchase the coins, with most of the funds raised during the ICO allegedly retained by the company.

In a notable twist, the lawsuit alleged that HelbizCoin was a security under federal law, a point of contention with significant implications for the cryptocurrency market. The lawsuit was not without its challenges, as it was initially dismissed by a lower court judge in January 2021, citing a Supreme Court precedent from 2010 that limited the reach of federal securities laws beyond U.S. borders. However, the case was revived in October 2021 when the 2nd U.S. Circuit Court of Appeals found the lower court judge’s decision erroneous.

Court’s ruling

On September 1, 2023, the U.S. District Court for the Southern District of New York ruled on the HelbizCoin case. The court partially favoured the investors, granting some motions to dismiss while denying others. Notably, all claims against certain defendants, including Paysafe, Skrill, Decentral, and Alphabit, were dismissed due to a lack of personal jurisdiction over these entities. Some claims against the remaining defendants, including breach of contract, tortious interference, and certain securities claims, were also dismissed for failing to state a claim.

However, Judge Louis Stanton’s ruling did validate the investors’ claims on various fronts. The court found that plaintiffs had adequately stated claims for fraud, price manipulation, violations of securities laws, commodities laws, the RICO (Racketeer Influenced and Corrupt Organizations) Act, and unjust enrichment against specific defendants.

One particularly consequential aspect of the court’s decision was its determination that the ERC-20 token issued by Helbiz during the ICO qualified as a security under federal law. This ruling carries significant implications for classifying cryptocurrencies and tokens, potentially setting a precedent for future cases involving similar issues.

Blockchain transparency and evidence

In an era where blockchain technology is celebrated for transparency, the HelbizCoin case extensively used the Ethereum ledger to support the investors’ claims. The complaint included multiple charts demonstrating what the investors characterized as “spoof trading” during the ICO. Additionally, evidence of multiple “Genesis wallets” was presented to initial investors like Anthony Di Iorio. These wallets were allegedly involved in similar behaviour in ICOs endorsed by Di Iorio, including EOS.

Michael Kanovitz, the lawyer representing the investors, emphasized the significance of blockchain transparency in uncovering fraudulent activities. He likened encountering multiple genesis wallets to a fingerprint that points to a select few individuals globally. Furthermore, he noted that these genesis wallets were implicated in ICOs supported by Di Iorio, raising suspicions of coordinated activities.

However, it’s worth mentioning that while the complaint alleged that Di Iorio, an advisor to Helbiz, published false and misleading statements about the HelbizCoin ICO in Bitcoin Magazine, it did not provide concrete evidence that he had indeed made these statements. The court deemed this conclusion speculative and thus insufficient to establish that Di Iorio had disseminated false information.

Conclusion

The recent federal court decision to allow the class-action lawsuit against HelbizCoin’s creators underscores the growing scrutiny and legal challenges facing the cryptocurrency industry. The ruling’s determination that the ERC-20 token issued during the ICO qualifies as a security may have far-reaching implications for regulating cryptocurrencies and tokens in the United States. Moreover, the case highlights the role of blockchain transparency in uncovering potential fraudulent activities and emphasizes the need for legal clarity in the evolving landscape of digital assets.