GMO Trust Files Motion to Dismiss Lawsuit Over GYEN Stablecoin Price Fluctuations

News | June 4, 2024 By:

On Thursday, May 23, 2024, Trust Company, Inc. filed a motion to dismiss a class action lawsuit in the United States District Court for the Southern District of New York.

The lawsuit was brought by three cryptocurrency investors against GMO Trust, the issuer of the GYEN stablecoin, alleging violations of federal securities laws and state consumer protection statutes. GYEN is a cryptocurrency issued by GMO Trust that is intended to maintain a stable value of 1 Japanese Yen (JPY).

GMO Trust argued in its motion that the plaintiffs’ claims should be dismissed for several key reasons. First, GMO Trust asserts that GYEN is not actually a security under federal law. To qualify as a security, an investment must involve an expectation of profits derived primarily from the efforts of others. However, GYEN is designed to always be redeemable for 1 JPY from GMO Trust and is not intended to appreciate in value.

Furthermore, GMO Trust stated that it did not directly sell GYEN to the plaintiffs. Under the Securities Act, private causes of action are only permitted against direct sellers of unregistered securities. The plaintiffs in this case purchased GYEN from other users on cryptocurrency exchanges like Coinbase and Binance, not from GMO Trust itself.

The motion also contended that the plaintiffs’ state law claims under New York and California consumer protection statutes should be dismissed. These statutes are not intended to apply to securities transactions. GMO Trust argued it did not make any materially false statements to mislead investors, and that the plaintiffs failed to demonstrate how any specific representations caused their financial losses.

The lawsuit centers on temporary periods in May and November 2021 when the price of GYEN rose above the exchange rate between the Japanese Yen and the U.S. dollar on Coinbase and Binance after those exchanges first listed GYEN. Though GMO Trust continued redeeming GYEN for 1 JPY, the cryptocurrency’s value became detached from the yen on the exchanges due to sudden demand. The plaintiffs purchased GYEN during these disconnects at inflated prices and later sold at a loss when values returned to parity with the yen.

GMO Trust stated that nobody who knowingly bought GYEN above its intended 1 JPY value could logically have been misled into believing short-term deviations were impossible. The company characterized the entire lawsuit as fundamentally flawed, given the plaintiffs purchased GYEN as an apparent investment despite its design as a stablecoin backed fully by yen reserves and redeemable at a fixed rate.

Please contact BlockTribune for access to a copy of this filing.