Polychain Secures Dismissal of Crypto-Related Securities Class Action

June 10, 2022

Cleary Gottlieb successfully represented Polychain Capital LP (Polychain) in obtaining the dismissal with prejudice of a class action complaint for alleged violations of the Securities Act of 1933 in connection with the alleged unregistered sale and marketing of Internet Computer Project tokens (ICP tokens) filed by plaintiff Daniel Ocampo in the Superior Court of California San Mateo County.

The plaintiff filed the complaint on July 15, 2021, on behalf of all purchasers of ICP tokens on or after May 10, 2021. Along with Polychain, the complaint named Dfinity USA Research LLC and Dfinity Stiftung (together, Dfinity), AH Capital Management L.L.C., and Dominic Williams. The complaint alleged that the defendants sold unregistered securities in violation of Section 12(a)(1) of the Securities Act and were control persons under Section 15 of the Securities Act.

Polychain, Dfinity, and AH Capital Management L.L.C. separately filed demurrers on February 25, 2022, seeking dismissal of the complaint for failure to state facts sufficient to constitute a cause of action under the Securities Act. Polychain argued (among other things) that the complaint had not alleged any direct sales of ICP tokens or solicitation of such sales under binding California precedent, and that the complaint failed to allege facts supporting that it was a control person of Dfinity under Section 15 of the Securities Act. The court agreed, finding that the complaint did not adequately allege that Polychain was a statutory seller or a control person, and issued an order on April 8, 2022, sustaining the demurrers and dismissing the complaint with leave to amend.

On May 24, 2022, the plaintiff filed an amended complaint, which contained no new factual allegations with respect to Polychain. As such, on June 10, 2022, the court dismissed Polychain from the action with prejudice.