HelbizCoin Lawsuit Advances as U.S. Court Declares It a Security

News | September 5, 2023 By:

In a consequential move, a United States federal court has advanced a nearly three-year-long class-action lawsuit against the architects of HelbizCoin. This legal battle commenced back in 2020, targeting not only Helbiz but also its CEO, Salvatore Palella, and its associates. An amended complaint was subsequently filed in March 2022.

The crux of this legal saga revolves around HelBiz, an Italian electric scooter-sharing firm that conducted an ICO in 2018. During this fundraising event, they raked in a substantial $38.6 million and issued an ERC-20 token, allegedly in partnership with Anthony Di Iorio, a co-founder of Ethereum.

The plaintiffs, a collective of investors numbering potentially as high as 20,000, assert that HelbizCoin was complicit in a duplicitous “rug pull” and an unscrupulous “pump-and-dump” maneuver. Their argument hinges on the assertion that Helbiz enticed investors with deceitful statements and promises, with the lion’s share of the ICO proceeds supposedly lining the company’s coffers.

Adding a profound layer of complexity to this litigation is the assertion that the ERC-20 token should be classified as a security under federal law, a stance firmly advocated by the investors’ legal representative, Michael Kanovitz.

The journey of this case has been far from smooth. Initially, it faced a setback when a lower court judge dismissed it in January 2021, invoking a 2010 Supreme Court ruling that curtailed the application of federal securities laws beyond U.S. borders. Yet, in October 2021, the 2nd U.S. Circuit Court of Appeals breathed new life into the proceedings by overturning the lower court judge’s ruling, prompting the amended complaint filed in March 2022.

The appeals court questioned the lower court’s jurisdictional stance on reviewing Helbiz Inc.’s $38.6 million initial coin offering. Their argument hinged on the notion that these tokens were neither listed on a U.S. exchange nor purchased domestically. It’s noteworthy that this decision didn’t delve into the lawsuit’s merits but could set a precedent for cryptocurrency firms seeking to evade U.S. legal accountability by asserting foreign operations and fundraising activities.

Nevertheless, the Manhattan Appeals Court advocated for a more “tailored” approach, suggesting that the investors’ claims under New York state law and its extraterritorial application should be considered. Additionally, the court permitted the investors to amend their complaint, highlighting one plaintiff who, as a Texan, domestically acquired HelbizCoin, thereby reinforcing their claims under federal securities law.

Fast-forward to September 1, 2023, when the U.S. District Court for the Southern District of New York rendered its verdict in the HelbizCoin case. The court handed down several pivotal determinations, partially favoring the investors by granting certain motions to dismiss while denying others.

Specifically, claims against certain defendants, including Paysafe, Skrill, Decentral, and Alphabit, were dismissed due to a lack of personal jurisdiction over these entities. Similarly, some claims against the remaining defendants, including allegations of breach of contract, tortious interference, and certain securities violations, failed to hold water.

Nonetheless, Judge Louis Stanton’s ruling vindicated certain claims made by the investors. The court found that the plaintiffs had satisfactorily alleged claims related to fraud, price manipulation, breaches of securities laws, commodities laws, violations of the RICO (Racketeer Influenced and Corrupt Organizations)¬†Act, and unjust enrichment against specific defendants.