New Jersey Federal Court Holds that Cryptocurrency Allegations Sufficiently Alleged a “Security” Subject to ’33 Act Registration Requirements

In Solis v. Latium Network, Inc., Susan D. Wigenton, a United States District Judge in the District of New Jersey, held that a class action plaintiff adequately alleged that a particular cryptocurrency was a “security” subject to the registration requirements of the Securities Act of 1933 and, by extension, the regulatory strictures of the Securities Exchange Act of 1934. Solis alleged that Latium operates a blockchain-based, crowdsource tasking platform, which allows users to create tasks, find people to complete the tasks, and then verify completion of the tasks according to specified standards. Users of the platform pay for the completed tasks using Latium X tokens, Latium’s proprietary cryptocurrency, which can be used only on Latium’s platform. Solis also alleged that, to raise money for the platform, Latium offered its tokens for sale to the public in exchange for U.S. dollars or the cryptocurrency Ether. The sale was conducted in several stages, with the cost of a token increasing with each successive stage. When marketing the tokens, Latium stressed the limited quantity of tokens to be issued and characterized its tasking platform, particularly in tandem with the tokens, as a “unique investment opportunity.” Solis purchased $25,000 in Latium X tokens and...