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Stephen Palley, a lawyer at Anderson Kill, has unleashed a series of tweets in his Twitter account about the FLiK token case in which the famous rapper TI found himself sued for $5 million. In his commentary, Palley states that the court relates to the token as a security rather than a utility token.
FLiK is an end to end entertainment platform that allows entertainment projects to be funded. FLiK tokens can be used to purchase projects on the platform. FLiK gathered widespread attention due to its celebrity backing with rapper TI, comedian Kevin Hart and well-known businessman Mark Cuban endorsing it. Rapper TI and his business partner Ray Felton promoted the token using their celebrity status to bring in investment.
25 individuals sued TI for $5 million, claiming they invested $1.3 million into tokens that became “worthless” once they were launched on the market. There were allegations that TI, born Clifford Joseph Harris Jr, increased the value of the token and then sold the token when it began to crash. Mark Cuban and Kevin Hart were also criticized for their involvement in the project but have not been included in the recent court case.
Lawyer Stephen Palley posted a series of tweets, offering his legal commentary to the nuances of the lawsuit:
“Utility tokens” take another hit in case allegedly involving rapper TI. Court says FLiK ICO tokens = securities under Howey Test, for motion to dismiss purposes. That they offered some functionality ≠ relevant given buyers’ expect of profits solely from efforts of others.1/4”
“Although the tokens had additional functionality—such as access to in-person FLiK events for token owners—the complaint details several ways in which Felton led the plaintiffs to believe that they could expect a profit from buying the tokens.” 2/4”
“Use of funds “was already determined by the defendants” per the FLiK token whitepaper. 3/4”
“Even so, court says there’s a time problem — claims for unregistered sale of securities have to be brought within a year after the violation on which they are based, under federal law. Because this isn’t pleaded, these claims are dismissed with leave to refile. 4/4”
In a nutshell, TI illegally sold unregistered securities in the form of the FLiK ICO tokens. After Palley composed his four-part commentary on the case proceedings he decided to add a few more bits of information:
ps — form was never going to be exalted over substance, so none of this is a huge surprise. Also, this is a ruling on Rule 12(b)(6) motion to dismiss so the Court takes the allegations as true for purposes of ruling. The merits still have to be litigated.
He also added a pss which states that there is also a federal criminal component to the case.
It isn’t new that celebrities – from Gwyneth Paltrow to William Shatner – are embracing and promoting all sorts of technological endeavors such as cryptocurrencies and blockchain for personal financial gain, which of course in itself is not a problem. The real issue here that sometimes they’re not conducting a proper and adequate due diligence as they should and must (and they really should and must); because when they’re not, innocent and unsuspecting individuals are ultimately getting hurt.