22.  Bitcoin was the world’s first decentralized cryptocurrency.  It is also the largest and  most popular cryptocurrency, with a market capitalization of approximately $126 billion.  Bitcoin  spawned a market of other cryptocurrencies that, together with Bitcoin, have a current market  capitalization of approximately $192 billion.  (The term “bitcoin” can refer to both a computer  protocol and a unit of exchange.  Accepted practice is to use the term “Bitcoin” to label the protocol  and software, and the term “bitcoin” to label the units of exchange.)   23.  At its core, Bitcoin is a ledger that tracks the ownership and transfer of every bitcoin  in existence.  This ledger is called the blockchain.   24.  Blockchains act as the central technical commonality across most cryptocurrencies.   While each blockchain may be subject to different technical rules and permissions based on the  preferences of its creators, they are typically designed to achieve the similar goal of  decentralization.   25.  Accordingly, blockchains are generally designed as a framework of incentives that  encourages some people to do the work of validating transactions while allowing others to take  advantage of the network.  In order to ensure successful validation, those completing the validation  are also required to solve a “Proof of Work” problem by expending computational resources,  which has the effect of making the blockchain more accurate and secure.  For Bitcoin, those who  validate the blockchain transactions and solve the “Proof of Work” program are rewarded with  newly minted bitcoin.  This process is colloquially referred to as “mining.”   27.  In  April  2013,  there  were  only  seven  cryptocurrencies  listed  on  coinmartketcap.com, a popular website that tracks the cryptocurrency markets.  As of this filing,  the site monitors more than 2,000 cryptocurrencies.   28.  For a time, Bitcoin was the only cryptocurrency available on exchanges.  As  cryptocurrencies grew in popularity, exchanges began listing other cryptocurrencies as well, and  trading volumes expanded.  In early 2013, daily Bitcoin trading volumes hovered between $1  million and $25 million.  By the end of 2017, daily Bitcoin trading volumes ranged between $200  million and $3.8 billion.  B. Ethereum   29.  Ethereum is the second-most popular cryptocurrency, with a market capitalization  of approximately $16 billion.  The Ethereum blockchain functions similarly to the Bitcoin  blockchain insofar as its miners act as the validators of the network.  Miners of the Ethereum  blockchain are paid for their services in the form of newly minted ether.  (The term “Ethereum”  refers to the open software platform built on top of the Ethereum blockchain, while the term “ether”  is the unit of account used to exchange value within the Ethereum “ecosystem,” i.e., the overall  network of individuals using Ethereum or participating in the development of its network.)   30.  Unlike Bitcoin’s blockchain, Ethereum was designed to enable “smart contract”  functionality.  A smart contract is a program that verifies and enforces the negotiation or  performance of a contract.  Smart contracts can be self-executing and self-enforcing, which  theoretically reduces the transaction costs associated with traditional contracting.   32.  A smart contract enables these two people to submit the ether to a secure destination  and automatically distribute the ether at the end of the month without any third-party action.  The  smart contract self-executes with instructions written in its code which get executed when the  specified conditions are met.   33.  In order to enable widespread adoption and standardized protocols for smart  contracts, the Ethereum community has created certain out-of-the box smart contracts called  Ethereum Request for Comments (“ERCs”).    34.  An ERC is an application standard for a smart contract.  Anyone can create an ERC  and then seek support for that standard.  Once an ERC is accepted by the Ethereum community, it  benefits Ethereum users because it provides for uniform transactions, reduced risk, and efficient  processes.  The most widespread use of ERCs is to allow individuals to easily launch and create  new digital tokens.  C. ERC-20 Tokens   35.  ERC-20 is a standardized application standard that the creator of Ethereum, Vitalik  Buterin, first proposed in 2015.  ERC-20 is a standard that allows for the creation of smart-contract  tokens on the Ethereum blockchain, known as “ERC-20 tokens.”   36.  ERC-20 tokens are built on the Ethereum blockchain, and therefore they must be  exchanged on it.  Accordingly, ERC-20 tokens are functionally different than cryptocurrencies like  Bitcoin and Ethereum because they do not operate on an independent blockchain.    38.  ERC-20 tokens are simple and easy to deploy.  Anyone with a basic understanding  of Ethereum can use the ERC-20 protocol to create her own ERC-20 tokens, which she can then  distribute and make available for purchase.  Even people without any technical expertise can have  their own ERC-20 token created for them, which can then be marketed to investors.  D. The Advent Of The “ICO”   39.  Between 2014 and 2016, Bitcoin’s price fluctuated between $200 and $800.  During  this same time frame, ether’s price fluctuated between roughly $1 and $10.   40.  By the end of 2016, interest in cryptocurrencies began to accelerate, with prices  growing at a rate historically unprecedented for any asset class.  Over the course of 2017 alone,  bitcoin’s price increased from approximately $1,000 to approximately $20,000.  Ethereum’s  growth was even more startling.  On January 1, 2017, Ethereum was trading at approximately $8  per ether.  Approximately one year later, it was trading at over $1,400 per ether—a return of  approximately 17,000 percent over that period.   42.  In the case of SNT, the initial offering occurred over an approximately  twenty-four-hour period, with 100 percent of the available supply of SNT tokens sold, raising  approximately $100 million.     43.  Investors would explore the various cryptocurrency exchanges and social media  sites that published active and upcoming ICOs.  Many of these postings encouraged trading in  SNT for profit.  As one poster explained:  “On paper, [SNT] has some substance that most other  ICOs lack . . . Potential short-term ROI is appealing, but it’s something that I might consider  [holding] long-term.”     44.  Over 2017 and 2018, nearly $20 billion was raised through ICOs, none of which  was registered with the SEC.  Of the approximately 800 ICOs launched between 2017 and 2018,  the vast majority were issued using the ERC-20 protocol.   45.  Like most ICOs, ERC-20 ICOs were typically announced and promoted through  public online channels.  Issuers, including Status, typically released a “whitepaper” describing the  project and terms of the ICO.  These whitepapers advertised the sale of tokens or coins through  the ICO.  They typically advertised the creation of a “new blockchain architecture.”   46.  The whitepapers typically contained vastly less information than a registration  statement filed with the SEC would have included.  For example, whitepapers often did not include  a “plain English” description of the offering; a list of key risk factors; a description of important  information and incentives concerning management; warnings about relying on forward-looking  statements; or a standardized format that investors could readily follow.   48.  These tokens were frequently listed on cryptocurrency exchanges, where they were  bought and sold using other cryptocurrencies (such as Bitcoin or Ethereum) or traditional  currencies such as the U.S. dollar.   E. Status Solicited And Sold The SNT Token Through Both An ICO And Through  Subsequent Sales On Cryptocurrency Exchanges   49.  In June 2017, Status published a whitepaper for “The Status Network.”  Casting the  Status platform as “a window into the emerging decentralized web,” the whitepaper described the  platform as an “ecosystem of decentralized applications” that would “become[] a gateway to  undeniable free trade, peer-to-peer payments, and encrypted p2p communication for anyone with  a smartphone and internet access.”  The whitepaper asserted that, through SNT, Status would  “allow[] the behavior of the network and its software[] to become aligned with the interests of its  Users,” enabling users “to steer the direction of development and influence how the network  evolves over time.”    50.  SNT was launched through use of the ERC-20 protocol.  At launch, approximately  3 billion tokens were made available for purchase through use of the ERC-20 protocol.   52.  The remaining 41 percent of the tokens were sold during SNT’s ICO, which Status  organized and ran.  Over its twenty-four-hour ICO, from June 20 to June 21, 2017, Status raised  approximately $100 million in proceeds.   53.  The Status ICO was promoted on unregistered cryptocurrency exchanges:   54.  Status promoted and advertised SNT tokens in the United States.  For example,  Status was represented at the 2019 Blockchain Week New York conference, which held numerous  events in this district.  And on February 18, 2020, for example, Status hosted a product “Launch  Party” in New York City that, on information and belief, was attended by residents of this district.    F. Investors Would Not Reasonably Have Understood Prior To April 3, 2019, At  The Earliest, That SNT Was A Security   56.  The Status whitepaper assured potential investors that it “fit within regulatory  parameters in any new market we enter,” yet failed to register its offering of SNT with the SEC,  thus further confirming to investors that SNT was not a security.   57.  Misleadingly, Status also promoted itself as being similar to Bitcoin, which is not  a security nor required to be registered with the SEC.  The Status whitepaper asserted, for example,  that SNT was “[i]nspired by one of Satoshi Nakamoto’s original suggested use cases for Bitcoin”;  “organized around smart contracts running on Ethereum”; “the first ever mobile Ethereum client,”  which “connects directly to the Ethereum network”; and that “Status and Ethereum provide the  foundation necessary to give all stakeholders in a socioeconomic network equal footing.”   58.  At the time of the SNT ICO, Status took advantage of the market’s lack of  understanding and awareness concerning how cryptocurrencies worked.  In the face of suggestions  that SNT would be similar to Bitcoin, and considering the new technology at issue and Status’s  other statements, many investors were understandably unaware that SNT tokens had  fundamentally different features than other cryptocurrencies, which the SEC has determined are  not securities.  Prior to April 3, 2019, when the SEC released its Framework, it was therefore  unclear to a reasonable investor that SNT was a security.     60.  Other thought leaders in the space, such as the lawfully registered broker-dealer  Coinbase, opined in late 2016 that “we have considered the question of whether issuance of a  Blockchain Token prior to the existence of a system would constitute a security.  We have not  found conclusive law on the subject, but believe that the better view is that a non-security  Blockchain Token does not become a security merely because the system as to which it has rights  has not yet been created or completed.”   61.  In sum, before the SEC issued its Framework on April 3, 2019, a reasonable  investor would not have concluded that ERC-20 tokens like the SNT token were generally  securities subject to the securities laws.  On the contrary, they were confronted with representations  both from token issuers and from cryptocurrency discussions that would have led reasonable  investors to conclude they were not investing in securities.  And the Status whitepaper said nothing  about the issue whatsoever.   G. The SNT Tokens Are Securities   62.  SNT tokens are securities because they constituted an investment of money in a  common enterprise with a reasonable expectation of profits to be derived from the efforts of others.   At issuance, as described above, it was not clear that the SNT tokens were securities as defined  under federal and state securities laws.  Status acted as if the SNT tokens were not securities, for  example, by not ensuring that a registration statement was filed with the SEC, which would have  provided important disclosures to investors of the risks inherent in these investments, including  their speculative nature.   64.  By contrast, Status issued a substantial portion of the total stock of SNT tokens at  issuance, at very little economic cost to Status’s founders.  The creation of SNT tokens thus  occurred through a centralized process, in contrast to Bitcoin and Ethereum.  This would not have  been apparent at issuance, however, to a reasonable investor.  Rather, it was only after the passage  of time and disclosure of additional information about the issuer’s intent, process of management,  and success in allowing decentralization to arise that a reasonable purchaser could know that he or  she had acquired a security.  Purchasers were thereby misled into believing that SNT was  something other than a security, when it was a security.   65.  Within the last year, however, the SEC has clarified, pursuant to its statutorily  delegated authority, and with the benefit of labor-intensive research and investigations, that many  ERC-20 tokens, including SNT, are securities.  On April 3, 2019, as noted, the SEC published a  “Framework for ‘Investment Contract’ Analysis of Digital Assets,” in which it “provided a  framework for analyzing whether a digital asset is an investment contract and whether offers and  sales of a digital asset are securities transactions.”  Among the most significant statements therein  is the SEC’s description of how to analyze the various facts surrounding ICOs in determining  whether a given digital asset, like SNT, is a security.  Under application of the Framework, the  SNT tokens were securities at issuance.   67.  Investors in SNT tokens made an investment of money or other valuable  consideration for purposes of Howey.  The SEC Framework states:  “The first prong of the Howey  test is typically satisfied in an offer and sale of a digital asset because the digital asset is purchased  or otherwise acquired in exchange for value, whether in the form of traditional (or fiat) currency,  another digital asset, or other type of consideration.”   69.  The SEC Framework states:  “In evaluating digital assets, we have found that a  ‘common enterprise’ typically exists.”  This is “because the fortunes of digital asset purchasers  have been linked to each other or to the success of the promoter’s efforts.”   70.  The SNT tokens are no different.  Investors were passive participants in the SNT  token ICO and the profits of each investor were intertwined with those of both Status and of other  investors.  Status was responsible for supporting SNT, pooled investors’ assets, and controlled  those assets.  Status also retained a significant stake in SNT, thus sharing in the profits and risk of  the venture.    71.  To this effect, Status asserted that its governance structure “empower[ed]  stakeholders in the Status Network” by giving them rights akin to holders of voting stock in a  corporation.  The whitepaper asserted that “[a] core part of the Status Network Token is giving  stakeholders the ability to choose the direction that the software is developed.  The token is used  to make decisions on proposals, which can be made by any Stakeholder. . . .  The amount of tokens  you hold at that time becomes your voting power for that decision.”  Accordingly, investors in  SNT participated in a common enterprise by purchasing the token.  c.  SNT Token Investors Purchased The Tokens With A Reasonable  Expectation Of Profit From Owning Them   72.  As to “reasonable expectation of profits,” the SEC Framework states:  “A purchaser  may expect to realize a return through participating in distributions or through other methods of  realizing appreciation on the asset, such as selling at a gain in a secondary market.”    75.  The SEC Framework clarifies that investors purchased the SNT tokens with a  reasonable expectation of profits.   77.  The SEC Framework provides that the “inquiry into whether a purchaser is relying  on the efforts of others focuses on two key issues: Does the purchaser reasonably expect to rely on  the efforts of an [Active Participant]?  Are those efforts ‘the undeniably significant ones, those  essential managerial efforts which affect the failure or success of the enterprise,’ as opposed to  efforts that are more ministerial in nature?”    80.  Purchasers of pre-functional tokens, such as SNT, necessarily rely on the  managerial efforts of others to realize value from their investments.  The success of these  managerial efforts in developing the networks on which these tokens will operate is the primary  factor in their price, that is, until such tokens transition into being functional utility tokens.  The  SNT token was a security at issuance because profits from SNT would be derived primarily from  the managerial efforts of Status in developing the associated network on which SNT would  function, rather than having its profit derived from market forces of supply and demand, such as  might affect the price of a commodity such as gold (or Bitcoin).     81.  This dependency, however, on the managerial efforts of Status was not apparent at  issuance to a reasonable investor.  Considering the limited available information about how SNT  was designed and intended to operate, if such an investor were even able to interpret the relevant  law at the time, a reasonable investor lacked sufficient bases to conclude whether SNT was a  security until the platform at issue, and its relevant “ecosystem,” had been given time to develop.   In the interim, the investor lacked the facts necessary to conclude—let alone formally allege in  court—that the token she had acquired were securities.  It was only after the passage of some  significant amount of time, and only with more information about Status’s intent, process of  management, and lack of success in allowing decentralization to arise, that an investor could  reasonably determine that a token that was advertised as something other than a security was a  security all along.     83.  Indeed, both Hope’s and Bennett’s biographies were featured in the Status  whitepaper and were held out to be integral parts of the success of SNT.  The whitepaper  emphasized that “Carl and Jarrad, the co-founders of Status, have had a working relationship for  6 years on various projects, and 3 of those years were spent operating a software distribution  network, driving over 20 million installs to various software offerings, the profits of which were  used to fund Status and our team of 10 until this point.  During the operation of this business we  were uniquely positioned to see firsthand how personal data on the internet is bought and sold and  how users are acquired and retained.”   84.  Under this Framework, however complex the resolution of the issue would strike a  reasonable investor, SNT satisfies most if not all of the factors the SEC described as relevant to its  determination that a digital asset is a security.  Status created SNT tokens from thin air.  Status  represented that it would develop an ecosystem (i.e., the overall network of individuals using SNT  or participating in the development of its network) that would increase the value of SNT tokens.   Plaintiff and the Class reasonably expected Status to provide significant managerial efforts, to  develop and improve the SNT ecosystem, to develop and sustain a supportive network, and to  secure listings at exchanges through which SNT tokens could be traded or liquidated.  And Status  represented that it would provide significant managerial efforts to achieve these objectives and  make the issued ERC-20 token a success.  H.  The SEC Has Concluded That Tokens Such As SNT Are Securities   86.  In arriving at its determination that the EOS token is a security, the SEC reached  the following conclusions:    “Companies that offer or sell securities to US investors must comply with the  securities laws, irrespective of the industry they operate in or the labels they place  on the investment products they offer.”    “Block.one did not provide ICO investors the information they were entitled to as  participants in a securities offering.”    “[EOS] Tokens were securities under the federal securities laws”    “A purchaser in the offering of [EOS] Tokens would have had a reasonable  expectation of obtaining a future profit based upon Block.one’s efforts, including  its development of the EOSIO software and its promotion of the adoption and  success of EOSIO and the launch of the anticipated EOSIO blockchains.”    “Block.one violated Sections 5(a) and 5(c) of the Securities Act by offering and  selling these securities without having a registration statement filed or in effect  with the Commission or qualifying for an exemption from registration.”  As a result of the SEC’s enforcement action, Block.one consented to a settlement whereby it would  pay $24 million to the SEC.  The SEC’s recent conclusion—that EOS is a security—applies with  equal force to SNT.  I.  The Class Has Suffered Significant Damages From Defendants’ Actions   88.  Hope has admitted that Status has “collectively failed to deliver the SNT use-cases  [it] promised” in the whitepaper, and that Status had not reached the point where “people can  actually use SNT.”  News reports have observed that although Status, at the time, had “98  employees in 24 countries who earn an average salary of $108,000 . . . [t]he Status token has almost  no functioning purpose.”  To the extent Plaintiff and the Class still hold any SNT tokens, they  hereby demand rescission and make any necessary tender of the SNT tokens.  V.  89.  Plaintiff brings this action as a class action pursuant to Fed. R. Civ. P. 23 and seek  certification of the following Class:  all persons who purchased SNT tokens which were first sold  on or about June 26, 2017.  The Class Period is thus June 26, 2017 through the present.   90.  The Class excludes individuals subject to any enforceable arbitration clause  contained in any of the purchase agreements executed in connection with the SNT ICO.  The Class  includes all other individuals who purchased SNT tokens, including those individuals who  purchased SNT tokens in sales made through online cryptocurrency exchanges.   91.  Excluded from the Class are Defendants, their officers and directors, and members  of their immediate families or their legal representatives, heirs, successors or assigns and any entity  in which Defendants have or had a controlling interest.   92.  Plaintiff reserves the right to amend the Class definition if investigation or  discovery indicate that the definition should be narrowed, expanded, or otherwise modified.   93.  The members of the Class are so numerous that joinder of all members is  impracticable.  The precise number of Class members is unknown to Plaintiff at this time, but it is  believed to be in the tens of thousands.    95.  Plaintiff’s claims are typical of the claims of the Class members as all Class  members are similarly affected by Defendants’ respective wrongful conduct in violation of the  laws complained of herein.  Plaintiff does not have any interest that is in conflict with the interests  of the members of the Class.   96.  Plaintiff and members of the Class sustained damages from Defendants’ common  course of unlawful conduct based upon the loss in market value of the SNT tokens.   97.  Plaintiff has fairly and adequately protected, and will continue to fairly and  adequately protect, the interests of the members of the Class and has retained counsel competent  and experienced in class actions and securities litigation.  Plaintiff has no interests antagonistic to  those of the Class.   99.  A class action is superior to all other available methods for the fair and efficient  adjudication of this controversy since joinder of all members is impracticable.  Furthermore, as the  damages suffered by some of the individual Class members may be relatively small, the expense  and burden of individual litigation makes it impossible for members of the Class to individually  redress the wrongs done to them.   100.  There will be no difficulty in the management of this action as a class action.  A. The First Cryptocurrency: Bitcoin   