Start-up Giga Watt is being sued for purportedly conducting an unregistered securities offering.
The complaint against Giga Watt was filed by a group that put in over $20 million in cryptocurrency – with a current estimated valuation of $100 million – during the project’s token sale back in July and August.
In exchange for their contributions, investors were to be given either Giga Watt tokens that would give them exclusive rights to use the company’s mining facilities at no cost for 50 years, or mining equipment and supplies to be deployed and set up by the on-site project team.
Asserting that construction deadlines and promises to refund contributions have not been met, the plaintiffs are demanding the return of their investments.
According to the filing:
“Many investors [who] have not been issued their Giga Watt tokens or had their machines set up and deployed, fear that they might never be issued their tokens or see their mining machines activated, and are losing valuable time and money as defendants indefinitely delay the further development of the Giga Watt Project.”
Giga Watt is founded by well-known bitcoin miner Dave Carlson and aspires to democratize the mining process by making customized turnkey mining “pods.”
This will be partnered with an inexpensive and stable electricity supply and round-the-clock maintenance at a facility in central Washington.
While the startup worked with the law firm Perkins Coie before the launch to guarantee the tokens would not be considered securities, the plaintiffs are saying that tokens issued for a pre-functioning network are, by their very nature, securities that must be recorded with the U.S. Securities and Exchange Commission, or granted an exemption before they can be sold.
Filed in U.S. District Court in Eastern Washington, this case could offer an important barometer for how U.S. courts will handle tokens that will have future “utility,” but are issued before a functioning network is in place.
“Just because utility tokens might one day have a consumptive use does not remove them from being a ‘security’ prior to that use,” said David Silver, a partner at Silver Miller in south Florida, who filed the Giga Watt complaint on behalf of the plaintiffs.
The filing also claims that investors were provided with the expectation that they would profit financially from their investment.
According to the filing:
“Several Giga Watt representatives have overtly and unmistakably stated to investors that between the time of the ICO and the date on which each investor would be issued his/her/its Giga Watt tokens, the value/price of each Giga Watt token was anticipated to increase significantly.”
