Tezos court issues compromise ruling, orders SEC communication produced

Quick Take

  • The court has issued a compromise ruling in dispute over documents demanded by plaintiffs in the Tezos litigation.
  • The court rejected Plaintiffs’ broad demand for documents created after the lawsuit was filed
  • However, the court also made an exception for regulators, saying communications between Tezos and regulators like the SEC might be relevant 

Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.

As always, Rosario summaries are “NMR” and Palley summaries are “SDP".

[related id=1] GGCC, LLC, et al. v. Dynamic Leger Solutions, Inc., “Order Regarding Discovery Dispute”, N.D. Cal., 17-cv-06779-RS, 6/10/2018 [SDP]

We covered a discovery dispute in the Tezos litigation two weeks ago. The Court ruled quickly, on June 10, 2018, in a mixed bag ruling that gave both parties something.

On the one hand, the Court rejected Plaintiffs’ broad demand for documents that were created after the lawsuit was filed, with an exception for communication with regulators, include the SEC. The Court reasoned that “[i]t is difficult to imagine documents created months after the Tezos ICO that are relevant to whether the Tezos tokens constituted ‘securities’ at the time of the July 2017 ICO.”

On the other hand, the court said “communications regarding communications between Defendants and the SEC or other governmental or regulatory agency” might be relevant. In particular, “[i] If Defendants characterized the Tezos tokens in those communications in a manner that conflicts with the manner they characterize them in this litigation, Plaintiffs are entitled to obtain those documents.”

It has been a matter of speculation by some as to whether or not the current defendants are subject to any sort of regulatory or governmental investigation. If they are, the Plaintiffs will be entitled to find out and to see relevant documents. If not, Defendants will simply respond that there aren’t any (though one expects they would have already said so, as opposed to objecting to the request).

Will this influence the outcome of the case? It’s hard to say for sure. If there IS an ongoing SEC investigation in progress, the Defendants would surely argue that the investigation and any resolution (if there is one) is wholly irrelevant to the outcome of this case. It’s not an argument without merit. Also, an investigation itself is typically confidential so it is certainly possible that responsive documents would be produced subject to a protective order (a confidentiality agreement) and not made public. At the same time, the absence of an investigation doesn’t prove much either, however much it might fuel speculation on social media.

The Block is pleased to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Part III of this week's analysis, Crypto Caselaw Minute, is above.

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