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1 QUINN EMANUEL URQUHART & SULLIVAN, LLP
Michael E. Liftik (CA Bar No. 232430)
2 Sarah Heaton Concannon (pro hac vice)
1300 I Street, Suite 900
3
Washington, D.C. 20005
4 Telephone: (202) 538-8000
michaelliftik@quinnemanuel.com
5 sarahconcannon@quinnemanuel.com
6 Emily C. Kapur (CA Bar No. 306724)
555 Twin Dolphin Dr., 5th Fl.
7
Redwood Shores, California 94065
8 Telephone: (650) 801-5000
emilykapur@quinnemanuel.com
9
[Additional Counsel on Signature Page]
10
Attorneys for Defendants Dfinity USA Research, LLC
11
and Dfinity Stiftung
12
SUPERIOR COURT OF THE STATE OF CALIFORNIA
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COUNTY OF SAN MATEO
14
DANIEL OCAMPO, Individually and on Case No. 21-CIV-03843
15 Behalf of All Others Similarly Situated,
DECLARATION OF MICHAEL E.
16
Plaintiff, LIFTIK IN SUPPORT OF
17 DEFENDANT DFINITY USA
RESEARCH, LCC’S DEMURRER
18 v. TO THIRD AMENDED
COMPLAINT
19 DFINITY USA RESEARCH LLC, DFINITY
STIFTUNG, AH CAPITAL MANAGEMENT,
20 L.L.C., POLYCHAIN CAPITAL, DOMINIC Hon. Susan L. Greenberg
WILLIAMS, and JOHN DOES 1-20, Dept. 22 – Ctrm. I
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Date Action Filed: July 15, 2021
Defendants. Date: January 11, 2024
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Time: 8:00 a.m. PT
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Case No. 21-CIV-03843
DECLARATION OF MICHAEL E. LIFTIK ISO DEFENDANT DFINITY USA RESEARCH, LLC’S DEMURRER
TO THIRD AMENDED COMPLAINT
1 I, Michael E. Liftik, declare:
2 1. I am an attorney at law licensed to practice before this Court and all of the courts of
3 the state of California. I am an attorney with the law firm Quinn Emanuel Urquhart & Sullivan,
4 LLP, counsel of record for Defendants Dfinity USA Research, LLC and Dfinity Stiftung. I am one
5 of the attorneys responsible for the representation of Defendants Dfinity USA Research, LLC and
6 Dfinity Stiftung in this matter and, as such, I have personal knowledge of the facts set forth in this
7 declaration. I am also counsel of record and one of the attorneys responsible for representation of
8 Dfinity USA Research, LLC, Dfinity Foundation and Dominic Williams in the action captioned
9 Valenti v. DFINITY USA Research LLC, et al., No. 21-cv-6118 (N.D. Cal.), currently pending in the
10 Northern District of California. If called as a witness for this purpose, I could and would testify
11 competently under oath to the facts stated herein.
12 2. Attached hereto as Exhibit A is a true and correct copy of a “redline,” generated using
13 the software program Change-Pro, that compares (1) Plaintiff’s September 9, 2022 Second
14 Amended Class Action Complaint for Violations of the Securities Act of 1933; with (2) Plaintiff’s
15 February 9, 2023 Third Amended Class Action Complaint for Violations of the Securities Act of
16 1933, both filed and served in connection with this matter.
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18 Executed on this 5th day of September, 2023 in Washington, DC.
19
20 /s/ Michael E. Liftik
Michael E. Liftik (CA Bar No. 232430)
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-2- Case No. 21-cv-03843
DECLARATION OF MICHAEL E. LIFTIK ISO DEFENDANT DFINITY USA RESEARCH, LLC’S DEMURRER
TO THIRD AMENDED COMPLAINT
(;+,%,7A
1 John T. Jasnoch (CA 281605)
SCOTT+SCOTT ATTORNEYS AT LAW LLP
2 600 W. Broadway, Suite 3300 San
Diego, CA 92101
3 Telephone: 619-233-4565
Facsimile: 619-233-0508
4 jjasnoch@scott-scott.com
5 Counsel for PlaintiffDanielPlaintiff Daniel Ocampo
6 [Additional Counsel on Signature
Page.] 7
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 COUNTY OF SAN MATEO
Behalf Case No. 21-CIV-03843 of All Others
10 DANIEL OCAMPO, Individually and on
Similarly Situated,
ii
11
Plaintiff, 27
SECOND
AMENDED 28
CLASS ACTION
12 V’ COMPLAINT FOR
VIOLATIONS OF THEv.
13 DFINITY USA RESEARCH LLC, DFINITY
SECURITIES ACT OF 1933
FOUNDATION STIFTUNG, AH CAPITAL
14 MANAGMENT,
14 POLYCHAIN CAPITAL, DOMINIC
WILLIAMS, and JOHN DOES 1-20, 15
Defendants.
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THIRD AMENDED CLASS ACTION
26
JURY TRIAL DEMANDED
SECOND AMEDED CLASS ACTION COMPLAINT
Case No. 21-CIV-03843
THIRD AMENDED CLASS ACTION
COMPLAINT FOR VIOLATIONS OF
THE SECURITIES ACT OF 1933
JURY TRIAL DEMANDED
THIRD AMENDED CLASS ACTION COMPLAINT
1 Plaintiff Daniel Ocampo (“Plaintiff’”), individually and on behalf of all others similarly situated, by
2 PlaintiffsPlaintiff’s undersigned attorneys, alleges the following based upon personal knowledge as to
PlaintiffsPlaintiff’s
3 own acts, and upon information and belief as to all other matters based on the investigation conducted by
4 and through Plaintiff ’s attorneys, which included, among other things, a review of governmental filings
5 and commentary, publicly available reports and information, analyst and media reports, and other
6 commentary analysis. Plaintiff ’s investigation into the matters alleged herein is continuing and many
7 relevant facts are known only to, or are exclusively within the custody and control of, the Defendants.
8 Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein
9 after a reasonable opportunity for formal discovery.
10 NATURE AND SUMMARY OF ACTION
11 i i 1. Plaintiff brings this securities class action under §§5, 12(a)(1), and 15 of the Securities Act
12 of 1933 (the “Securities Act”) against (1) Dfinity USA Research LLC (“Dfinity USA Research” or the
13 “Company”); (2) Dfinity’s
13parent organization,the Dfinity Foundation Stiftung (“the “Foundation”,” together with the Company,
collectivelyDfinity USA Research,
14 referred to as “Dfinity”); (3) Polychain Capital (“Polychain”); (4) AH Capital Management LLC15
(“Andreessen”); and
15 (5) Dfinity’s controlling executive and director, Dominic Williams (“Williams,” together with16 Polychain
16 and Andreessen, to as the “Controlling Defendants ”).1 Plaintiff alleges that Defendants sold17
unregistered
17 securities to investors in violation of the Securities Act. Defendants are liable in their18 capacities as
issuers,
18 statutory sellers, and/or direct or indirect offerors of ICPInternet Computer Project tokens (“ICP
tokens” or 19 “ICP”).
1
1 ' Dominic Williams, Announcing DFINITY Fundraising Plans, and a Massive Welcome to Polychain Capital and Andreessen Horowitz (Feb. 7, 2018),
https://medium.com/dfinity/announcing-dfinity- fundraising-plans-and-a-massive-welcome-to-po1ychain-capital-and-andreessen-2ceb34769cd3 (last
24visited May 20, 2021).
2
See id.251
The Foundation, Dfinity USA Research and the Controlling Defendants are collectively
referred to
28 as “Defendants.”
1
SECONDTHIRD AMENDED CLASS ACTION
COMPLAINT Case No. 21—-CIV—-03843
1920 2. Plaintiff brings this action on behalf of all investors who purchased Internet Computer
20Project tokens (“ICP” tokens) on or after
21 May 10, 2021, and werewas damaged thereby.
22 213. ICP qualifyqualifies as securitiesa security under Section §2(a)(1) of the Securities Act, 15
U.S.C. §77b(a)(1).22 The
23 purchase of ICP constitutes an investment contract assince ICP purchasers, including Plaintiff, provided
24 23consideration (in the form of flatfiat, i.e., U.S. dollars or other cryptocurrencies) in exchange for ICP.
ICP is
25 24an investment in a common enterprise and purchasers reasonably expected to derive profits from their
26 25ownership of ICP. Defendants promoted this profit motive as a reason to purchase
ICP. 2627
28 Dfinity, DF, and the Controlling Defendants are collectively referred to as “Defendants.”
i
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SECONDTHIRD AMENDED CLASS ACTION
COMPLAINT Case No. 21—-CIV—-03843
1 14. No registration statements have been filed with the U.S. Securities and Exchange
2 Commission (“SEC”) or have been in effect with respect2 to the ICP offerings alleged herein.
3 5. All 469,213,710 ICPICPs made available during the “Genesis” listing event were created
out
4 of4 thin air by Dfinity. At least twenty-four percent (24%) of all ICPICPs in existence, were given to the
Controlling5 Defendants, in
5 particular, Polychain and Andreessen.
6 6. Defendants have since earned massive profits by selling the retained ICP to the public,
7 without complying with federal securities laws, in what is essentially an ongoing initial coin offering
8 (“ICO”). Like in an initial public offering (“IPO”), in an ICO, digital assets are sold to consumers in
exchange9 for
9 legal tender or other cryptocurrencies (most often Bitcoin and Ethereum).
10 7. Defendants sell ICP from the retained supply and use the proceeds from the sales to fund i
i
11 Company operations, to reward investors, and as governance tokens.
12 8. In order to increase demand for ICP, and thereby increase the profits derived by selling ICP,
13 Defendants portray ICP as a good investment, solicit sales, and express optimistic and misleading
14 predictions on ICP’s ability to disrupt established technologies. Dfinity greatly increased these efforts to
15 push ICP on the general public in recent years and months.
16 9. These solicitation efforts were conducted by interstate means, as were the sales of ICP.
17 JURISDICTION AND VENUE
18 10. The Court has subject -matter jurisdiction over this action pursuant to the California
19 Constitution, Article VI, and §§10 and 22 of the Securities Act, 15 U.S.C. §77v. The claims alleged herein
20 arise20 under §§5, 12(a)(1), and 15 of the Securities Act. See 15 U.S.C. §§77e, 77177l, and 77o. Section 22
of
21 the21 Securities Act, 15 U.S.C. §77v(a), expressly states that “[e]xcept as provided in section 77p(c) of this
22 title,22 no case arising under this subchapter and brought in any State court of competent jurisdiction shall
be
23 removed to any court of the United States.” See 15 U.S.C. §77v(a). Section 77p(c) refers to “covered class
24 action[s] brought in any24 State court involving a covered security, as set forth in subsection (b),” and
28
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SECONDTHIRD AMENDED CLASS ACTION
COMPLAINT Case No. 21—-CIV—-03843
25 subsection (b) of §77p in turn25 includes within its scope only covered class actions “based upon the
statutory
26 or common law of any State26 or subdivision thereof.” See 15 U.S.C. §77p. This is an action asserting only
27 federal law claims. Thus, this27 action is not removable to federal
court. 28
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SECONDTHIRD AMENDED CLASS ACTION
COMPLAINT Case No. 21—-CIV—-03843
1 11. Venue is proper in this jurisdiction pursuant to the provisions of California Code of Civil
2 Procedure §395(a) because certain Defendants reside in San Mateo County.
3 12. This Court has personal jurisdiction over Defendants as a result of acts of Defendants
4 occurring in and/or aimed at the stateState of California in connection with Defendants’ unregistered offer
and
5 sale of securities in violation of §§5, 12(a)(1), and 15 of the Securities Act.
6 13. This Court also has personal jurisdiction over Defendants because they reside in or have
their
7 principal places of business in California.
8 PARTIES
9 14. Plaintiff Daniel Ocampo is an individual and a resident of the State of California. Plaintiff
10 made purchases of ICP Tokenstokens shortly after the opening of the Genesis Launch on May 10, 2021,
through i i
11 June 25, 2021, on the U.S. -based cryptocurrency exchange Coinbase, and suffered losses on those
12 investments as a result of the scheme alleged herein. Leading up and following his initial purchase of
13 ICP, Plaintiff saw promotions from the Foundation on YouTube, as well as those on the Dfinity
14 website. Plaintiff also signed up through the Dfinity website to receive updates and further
15 information regarding the Internet Computer Project and ICP tokens. The Foundation sent out
email
16 blast promotions to Plaintiff during the Relevant Period, and the email address URLs for these
17 solicitations were all from “dfinity.org”
18 1315. Defendant Dfinity USA Research LLC is a Delaware corporation with its principal place of
19 14business at 411 Acacia Avenue, Palo Alto, California 94306. Dfinity operates as a U.S.-based subsidiary
of
15its parent organization,one of the so-called
20 “research centers” of the Dfinity Foundation and exists to allow the latter to operate within the United
States.
21 1616. Defendant Dfinity Foundation is a Zurich-based not-for-profit organization or “stiftung,” and
22 17is the true corporate entity behind all of ICP’s operations. The Foundation further elaborates on its
structure
23
28 in the “about” section for the recruiting page on its website: “The DFINITY Foundation operates
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SECONDTHIRD AMENDED CLASS ACTION
COMPLAINT Case No. 21—-CIV—-03843
globally
24 with research centers in Zurich and San Francisco as well as team members working remotely across
North
25 America, Europe and Asia.”2 The Foundation, with the aid of its employees working remotely
and/or within 26 27
2
Join the Movement, DFINITY, https://dfinity.org/about#jobs (last visited Feb. 9, 2023).
28
28
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SECONDTHIRD AMENDED CLASS ACTION
COMPLAINT Case No. 21—-CIV—-03843
1 California at its research center, Dfinity USA Research, created ICP and, at all relevant times,18
solicited
2 purchases of ICP by Plaintiff and the Class for its own benefit and the benefit of its executives and19
owners.
3 2017. Defendant Dominic Williams is the Founder, the President, a member of the Board of
4 Directors,21 and the Chief Scientist of Dfinity and Internet Computer projectProject and has been since
October 2016.
5 Williams is22 a resident of Santa Clara County. Williams exercised control over Dfinity and directed and/or
6 authorized,23 directly or indirectly, the sale and/or solicitation of ICP to the public.
7 2418. Defendant AH Capital Management (“Andreessen”) is a private venture capital firm
founded25 in 2009.
8 Andreessen is a California company with its headquarters in Menlo Park, California in this County.
9 26Andreessen exercised control over Dfinity and directed and/or authorized, directly or indirectly, the sale
10 27and/or solicitation of ICP to the public. Andreesen is also known by “AH Capital Management,
L.L.CLLC.”
28
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THIRD AMENDED CLASS ACTION
11 119. Defendant Polychain Capital is a cryptocurrency investment firm managing portfolios of
12 2digital assets and has been since 2016. Polychain is headquartered in San Francisco, California. Polychain
13 3exercised control over Dfinity and directed and/or authorized, directly or indirectly, the sale and/or
14 4solicitation of ICP to the public.
15 520. The defendants referred to in $$¶¶17-19 are referred to as the “Controlling Defendants.”
16 6SUBSTANTIVE ALLEGATIONS
17 7A. Background of Cryptocurrency
18 821. A cryptocurrency is a digital asset designed to work as a medium of exchange or a store of
19 9value or both. Cryptocurrencies use various cryptographic principles to secure transactions, control the
20 10creation of additional units, and verify the transfer of the underlying digital assets.
21 i i 22. Created in 2009, Bitcoin was the world’s first decentralized cryptocurrency.
22 1223. With a market capitalization of approximately $1.4 trillion, Bitcoin is also at the top of the
23 13cryptocurrency market by a wide margin.
24 1424. Bitcoin fiinctionsfunctions as a ledger that tracks the ownership and transfer of every
bitcoinBitcoin in
25 15existence. This ledger is called a
blockchain. 26
27
28
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THIRD AMENDED CLASS ACTION
1 1625. Blockchains act as the central technical commonality across most cryptocurrencies. While
2 17each blockchain may be subject to different technical rules and permissions based on the preferences of
its
3 18creators, they are typically designed to achieve the similar goal of decentralization.
4 1926. Accordingly, blockchains are generally designed as a framework of incentives that
5 20encourages some people to do the work of validating transactions while allowing others to take advantage
6 21of the network. In order to ensure successful validation, those completing the validation are also required
7 22to solve a “Proof of Work” problem by expending computational resources, which has the effect of
making
8 23a blockchain more accurate and secure. For Bitcoin, those who validate the blockchain transactions and
9 24solve the “Proof of Work” program are rewarded with newly minted bitcoinBitcoin. This process is
colloquially
10 25referred to as “mining.” Mining is one method by which an individual can acquire cryptocurrencies like
11 26Bitcoin. A second and more common manner is to obtain cryptocurrencies from someone else. This is
12 27often accomplished by acquiring it through an online “cryptocurrency exchange.”
28
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THIRD AMENDED CLASS ACTION
13 127. Online cryptocurrency exchanges are one place to purchase bitcoin Bitcoin and other
14 2cryptocurrencies. These exchanges are similar to traditional exchanges in that they provide a convenient
15 3marketplace to match buyers and sellers of virtual currencies.
16 428. In April 2013, there were only seven cryptocurrencies listed on
coinmartketcapcoinmarketcap.com, a
17 5popular website that tracks the cryptocurrency markets. As of this filing, the site monitors more than
2,0008,000
18 6cryptocurrencies.
19 729. Another popular cryptocurrency, Ethereum, was designed to enable “smart contract”
20 8functionality unlike Bitcoin’s blockchain.
21 930. A smart contract is a program that verifies and enforces the negotiation or performance of
22 10a contract.Smart contracts can be self-executing and self-enforcing, which theoretically reduces the i i
23 transaction costs associated with traditional contracting. By way of example of how a smart contract works,
24 12consider a situation where two people want to execute a hedging contract. They each put up $1,000
worth
25 13of ether. They agree that, after a month, one of them will receive back $1,000 worth of ether at the dollar
26 14exchange rate at that time, while the other receives the rest of the ether. The rest of the ether may or may
27 15not be worth more than it was at the beginning of the month.
28
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THIRD AMENDED CLASS ACTION
1 A smart contract enables these two people to submit the ether to a secure destination and
1631.
2 17automatically distribute the ether at the end of the month without any third-party action. The smart
contract
3 18self-executes with instructions written in its code which get executed when the specified conditions are
4 19met.
5 2032. By the end of 2016, interest in cryptocurrencies like Bitcoin, Ethereum, and other “alt coins”
6 21began to accelerate, with prices growing at a rate historically unprecedented for any asset class. Over the
7 22course of 2017 alone, bitcoinBitcoin’s price increased from approximately $1,000 to approximately
$20,000.
8 23Ethereum’s growth was even more startling. On January 1, 2017, Ethereum was trading at approximately
9 24$8 per ether. Approximately one year later, it was trading at over $1,400 per ether —‒ a return of
10 25approximately 17,000 percent% over that period.
11 2633. Seeking to capitalize on the growing enthusiasm for cryptocurrencies, many entrepreneurs
12 27sought to raise funds through ICOs. 28
5
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THIRD AMENDED CLASS ACTION
13 134. Between 2017 and 2018, nearly $20 billion was raised through ICOs. None of these ICOs
14 2was registered with the SEC.
15 335. These ICOs were typically announced and promoted through public online channels.
16 4Issuers typically released a “whitepaper” describing the project and terms of the ICO and promoted the
sale
17 5of the tokens. They typically advertised the creation of a “new blockchain architecture.”
18 636. The whitepapers contained vastly less information than would have been included in an
19 7SEC registration statement. For example, whitepapers (just like the ICP whitepaper23) typically did not
20 8include a “plain English” description of the offering; a list of key risk factors; a description of important
21 9information and incentives concerning management; warnings about relying on forward-looking
22 10statements; an explanation of how the proceeds from the offering would be used; or a standardized
format i i
23 that investors could readily follow.
24 1237. As a result of the lack of information, trading of tokens on exchanges such as Coinbase and
25 13Binance was rife for manipulation. 26
27
2
1 3
See Timo Hanke, Mahnush Movahedi & Dominic Williams, et al., DFINITY Technology
Overview Series Consensus System, DFINITY
STIFTUNG (Jan. 23, 2018), https://dfinity.org/pdf-viewer/pdfs/viewer?file=..
24
28 / library/dfinity-consensus.pdf.
12
THIRD AMENDED CLASS ACTION
1 1438. For example, the Tezos Foundation had an ICO in 2017, which raised $232 million for the
2
15company and insiders. This ICO, however, resulted in a class action lawsuit that settled for $25 million.34
3 16Commentators viewed this settlement as a means to avoid a possible future enforcement action by the
SEC
4 17for the sale of an unregistered security. 45 According to Quentin Herbrecht, Chief Executive Officer
(“CEO ”)
5 of blockchain marketing18 platform Markchain, that the plaintiffs in that action “think that Tezos agreed to
settle
6 this fine to prevent19 the SEC from re-characterizing their ICO as illegal securities offering, and this could
7
have been a fatal20 blow to the project. 5”6
21
22
23
25
3
1 4 Lucas Cacioli, Tezos Settles Class-Action Lawsuit Over 2017 $232 Million ICO to the Tune of $25
20 Million, BLOCKCHAIN.NEWsNEWS (Sept. 2, 2020),
https://blockchain.news/news/tezos-settles-class-action- lawsuit-over-2017-XTZ-232-million-25-million.
26 Osato Avan-Nomayo, Tezos Likely Avoiding SEC Action With $25M Class-Action Lawsuit
Settlement, COINTELEGRAPH.COM (June 28, 2020),
https://cointelegraph.com/news/tezos-likely-avoiding-
27sec-action-with-25m-class-action-lawsuit-settlement.
21
4z
2 Id.5 Osato Avan-Nomayo, Tezos Likely Avoiding SEC Action With $25M Class-Action Lawsuit Settlement, COINTELEGRAPH (June 28, 2020),
https://cointelegraph.com/news/tezos-likely-avoiding-sec- action-with-25m-class-action-lawsuit-settlement.
23
5
3 Id.
6
4 Id.
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THIRD AMENDED CLASS ACTION
8 1
39. Similarly, in 2018, Block.One’s held an ICO for the EOS blockchain. After a year-long
9 2offering, Block.One raised a staggering $4.1 billion for the company and insiders.‘7 Shortly after the ICO
10 3was completed, on September 30, 2019, the Securities and Exchange Commission (“SEC”) completed
an4 investigation and found that one Issuerissuer,
11 Block.one, had violated the Securities Act by selling the digital5 token EOS, an unregistered security, to the
12
public. As a result of this SEC enforcement action, Block.one6 was required to pay a $24 million fine.78
13 7
40. The founder of another cryptocurrency exchange (Bibox), Aries Wanlin Wang, previously
14 8noted that the secondary market for digital assets can be “rigged by manipulators. If you put major
15 9currencies such as Bitcoin and Ethereum aside, many of the tokens you’ll find issued through ICOs are
16
10there to be manipulated. 8”9 17 18
ii
19
24
22
5 7
Brady Dale, The First Yearlong ICO for EOS Raised $4 Billion. The Second? Just $2.8 Million,
COINDESK (Sept. 17, 2019),
https://www.coindesk.com/the-first-yearlong-ico-for-eos-raised-4-billion-the-
25 second-just-2-8-million.
6 ' 7
Dfinity, A Closer Look at Software Canisters, an Evolution of Smart Contract (Oct. 7,
2020),23https://medium.com/dfinity/software-canisters-an-evolution-of-smart-contracts-internet-computer-
fl f92f lbfffb.248 Press Release, U.S. Securities and Exchange Commission, SEC Orders
Blockchain Company to
26 Pay $24 Million Penalty for Unregistered ICO (Sept. 30, 2019), https://www.sec.gov/news/press-
release/2019-202; SEC Release No. 10714, 2019 WL 4793292 (Sept. 30, 2019).
9
8 Aries Wanlin Wang, Crypto Economy: How Blockchain, Cryptocurrency, and Token-Economy Are
Disrupting the Financial World (2018).
27
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THIRD AMENDED CLASS ACTION
1 41. According to Mr. Wang, “[t]hese tokens are similar to penny stocks. And everyone wants
2
12to believe they’ve discovered the next Bitcoin and Ethereum.”10
3 1342. Mr. Wang also candidly acknowledged that:
4 14[t]heThe problems facing the secondary market in crypto are similar to the problems
that were faced by American stock exchanges 100 years ago. When a market lacks certain
5 15regulations and oversights, predictable things happen. Pump and dumps are very
common in the secondary market of cryptocurrency, just as they were on the US stock
exchange
6 16so many years ago. Fraudsters spreading false news about new crypto in a chat room
have a great deal in common with con artists who sent false telegrams with information
that
7 17might impact a stock in 1919. In any traditional financial market, the practice of market
manipulation is illegal. And it should be. The lack of regulation that lets some people
8 18make a quick dollar hurts everyone else because it hurts our faith in the system.”
9 19[Emphasis added.]
10 2043. Notably, Bibox was one of only four cryptocurrency exchanges that have excluded ICP
11 21from trading. 22
236 Brady Dale, The First Yearlong ICO for EOS Raised $4 Billion. The Second? Just $2.8 Million,
COINDESK.COM (Sept. 17, 2019),
https://www.coindesk.com/the-first-yearlong-ico-for-eos-raised-4-
24billion-the-second-just-2-8-million.
Press Release, SEC Orders Blockchain Company to Pay $24 Million Penalty for Unregistered ICO
25
(Sept. 30, 2019), https://www.sec.gov/news/press-release/2019-202; SEC Release No. 10714, 2019 WL
26 4793292 (Sept. 30, 2019).
' Aries Wanlin Wang, Crypto Economy. How Blockchain, Cryptocurrency, and Token-Economy
Are
27Disrupting the Financial World (2018).
28Id.
7
12 1B. The Background of ICP
13 244. Dfinity’s so-called “Internet Computer” project purports to be a decentralized version of the
14 3internet itself. In essence, it is a smart contract platform designed to power blockchain versions of the
15 4internet’s most popular applications —– decentralized alternatives to WhatsApp, LinkedlnLinkedIn,
eBay, TikTok,
16 etc.
5— – which would displace the need to use centralized, gatekeeping hosting services like Amazon Web
1
17 6Mike
11
' 011Ingrid Lunden, DFINITY raises $102M from a16z and Polychain for a decentralized
Butcher &
Services. ‘Internet Computer’ to rival
AWS, TECHCRUNCH (Aug. 29, 2018),
15
THIRD AMENDED CLASS ACTION
18 745. The purported native cryptocurrency for Dfinity’s Internet Computer projectProject is the
ICP
19 8token. Thus, ICP is both an investment in the Company (as sales are used to fund Company operations
with
20 9the expectation that such investments in the Company will increase the value of ICP) and an investment in
21 10itself (with the expectation that the value of ICP will increase), as well as a means of exchange and i i
22 governance promoted by Dfinity.
23 1246. Unlike cryptocurrencies such as Bitcoin and Ethereum, which are mined by computer
24 13hardware validating transactions on their networks, all 469,212, 166.84 ICP tokens in existence were
simply
25 14created by Dfinity in May 2021 as a part of the Company’s fiinctionalfunctional equivalent of an ICO
(the “Genesis
26 10 Id.
AWS, TECHCRUNCH (Aug. 29, 2018),
27 https://techcrunch.com/2018/08/29/dfinity/.
16
THIRD AMENDED CLASS ACTION
1 15Launch”). As discussed more thoroughly below (see supra, Section B) a significant amount of the total
ICP16 supply was given to
2 the Controlling Defendants, with the remaining amount left retained by Dfinity.
3 1747. Dfinity’s plan was to publicly offer the ICP tokens it created and retained for sale to retail
4 18investors when the tokens were listed on various cryptocurrency exchanges. Dfinity would then use the
5 19proceeds to fiindfund the Foundation’s operations, including, but not limited to, the Internet Computer
Project
6 20or “ICP.”
7 2148. The Controlling Defendants have financially benefitted from their ICP being merchandized
8 and22 enabled the large-scale launch through their connection to the largest cryptocurrency exchanges that
9 made23 ICP widely available to the public.
10 2449. Defendants have control over how many ICP tokens are in the market. 25
26
2710 Mike Butcher & Ingrid Lunden, DFINITY raises $102M from a16z and Polychain for a
decentralized ’Internet Computer’ to rival AWS, TECHCRUNCH (Aug. 29, 2018),
28https://techcrunch.com/2018/08/29/dfinity/.
11 150. No registration statement has been filed for ICP with the SEC and no registration statement
12 2is in effect for ICP.
13 3C. Polychain and Andreessen Horowitz Are Significant Stakeholders of ICP
14 451. In February 2017, Dfinity held a “Seed” fiindraisingfundraising round for the Company to
use for its
15 5operations and investments in projects developed using ICP technology, receiving approximately $40
16 6million in flatfiat cash and digital assets “primarily from enthusiasts who followed the project.”' 112
17 7
52. Dfinity initially promised the “Seed Contributors” that the Company would run a “Main”
18 8fundraising round, akin to an ICO, at which time the seed contributors could cash out.1213
12
1 Dominic Williams, Announcing DFINITY Fundraising Plans, and a Massive Welcome to Polychain Capital and Andreessen Horowitz, MEDIUM (Feb. 7, 2018),
https://medium.com/dfinity/announcing- dfinity-fundraising-plans-and-a-massive-welcome-to-polychain-capital-and-andreessen-2ceb34769cd3.
26
13
2 See id.
17
THIRD AMENDED CLASS ACTION
19 9
53. “However,” as noted in a May 21, 2021 ICP analyst report, “after the 2017 boom, the project
20 10realized its valuation target was set too low” and the Company believed that “running an ICO fundraiser
ii
21 could have placed it in a grey legal territory where securities law was concerned.”””14
22 1254. Upon information and belief, Polychain and Andreessen were among those initial
23 13“enthusiasts” who were the Seed Contributors to ICP.
27
25
3 14
Mira Christanto & Wilson Withiam, An Introduction to Dfinity and the Internet Computer,
MESSARI (May 10, 2021),
https://messari.io/article/an-introduction-to-dfinity-and-the-internet-computer
28 (emphasis added). 18
THIRD AMENDED CLASS ACTION
1 1455. The single “Main” round of Dfinity’s funding model was subsequently changed to a two-
2 15part model. First, Dfinity would hold “Strategic” and “Private Presale” fundraising rounds. Second,
Dfinity
3 16would hold what for all intents and purposes was the very same type of ICO-style fundraiser Defendant
4 17Williams claimed might run afoul of securities laws.
5 1856. Defendant Williams conceded that Dfinity needed to change the original model because the
6 19Foundation’s initial promise would have capped the Seed Contributors’ returns with a “figure that we
later
7 20realized was far too low —– this would hardly satisfy a single large player now, and it’s clear our years
in the
23 21crypto trenches had left us completely unprepared for the explosion in scale of the crypto industry. ”
8 14 15
221' Mira Christanto & Wilson Withiam, An Introduction to Dfinity and the Internet Computer (May
10, 2021) https://messari.io/article/an-introduction-to-dfinity-and-the-internet-computer (emphasis
26 added).
27 14 Dominic Williams, Announcing DFINITY Fundraising Plans, and a Massive Welcome to Polychain
Capital and Andreessen Horowitz (Feb. 7, 2018), https://medium.com/dfinity/announcing-dfinity-
28
9
19
THIRD AMENDED CLASS ACTION
9 1
57. In response, Defendant Williams and Dfinity designed this two-part funding model so that it
10 2would “ensure the position of Seed participants will receive 24.72% of the network tokens that will exist
at
11 3Genesis . . . however much future mindingfunding is now raised.”' 516
12 4
58. Sometime around January or February 2018, Dfinity ultimately held the “Strategic”
13 5fundraising round.
14 659. Andreessen and Polychain participated in this fundraising round as well, jointly contributing
15 7another $61 mil1ionmillion.1617
16 8
60. The “Strategic Round” investors were entitled to receive 7% of the initial supplesupply of
ICP
17 9tokens.1718
18 10
61. As described in Defendant Williams’s February 7, 2018 blog post “Announcing DFINITY i
i
19 Fundraising Plans, and a Massive Welcome to Polychain Capital and Andreessen Horowitz”:
20 12[Dfinity] also decided that before going any fiirtherfurther, we would raise a
“Strategic” fundraising round that would bring in key partners who could help accelerate
progress of
21 13our project. Polychain Capital— ‒ a successfiilsuccessful and now famous crypto hedge
fiindfund backed by
Andreessen Horowitz, Sequoia, USV, Founders Fund and many other notable LPs —‒
22 14contacted us during the summer of 2017, while we were still only an “aficionado’s”
project not many people knew about, and we found we worked extremely well with them.
They
23
24 15 See supra, n.12.
2 17
See Gertrude Chavez-Dreyfuss, Blockchain project raises $61 million from Andreessen
Horowitz,
26 U.S. hedge fund, REUTERS (Feb. 7, 2018),
https://www.reuters.com/article/us-blockchain-investment-
andreessen/blockchain-project-raises-61-million-from-andreessen-horowitz-u-s-hedge-fund-idUSK
BN1F
27 R1IX.
17
3 Mira Christanto & Wilson Wthiam, An Introduction to Dfinity and the Internet Computer (May 10,
2021) https://messari.io/article/an-introduction-to-dfinity-and-the-internet-computer (emphasis added).18 See supra, n.14.
28
20
THIRD AMENDED CLASS ACTION
16
Id.
25
15
21
THIRD AMENDED CLASS ACTION
1 are distinguished by bullish optimism about what our industry can achieve balanced by
realism and operational smarts.
16
2
It was decided that Polychain would lead a relatively small round, and also help establish a
3 17substantial “DFINITY Ecosystem Venture Fund” that will now fiindfund projects
building on the DFINITY Internet Computer or otherwise supporting it. Andreessen
Horowitz, one of
4 18Silicon Valley’s preeminent venture capital fiindsfunds joined the round too, who are
also well known for their forward thinking and the support they provide to investee
projects. Today
5 19it was announced that, with the DFINITY Ecosystem Venture Fund, total
mindingfunding for our project will exceed $100M. With this, you can expect DFINITY
to begin to emerge from
6 20the dark.
21
22
23 fundraising-plans-and-a-massive-welcome-to-po1ychain-capital-and-andreessen-2ceb34769cd3 visited May
20, 2021) (emphasis added).
24 15 Id.
(last
16
25 See Gertrude Chavez-Dreyfuss, Blockchain project raises $61 million from Andreessen Horowitz,
U.S. hedge fund, REUTERS.COM (Feb. 7, 2018), https://www.reuters.com/article/us-blockchain-investment-
26andreessen/blockchain-project-raises-61-million-from-andreessen-horowitz-u-s-hedge-fund- idUSKBN
1FRl IX.27
7 162. Later in August 2018, Dfinity held its “Private Presale,” wherein Polychain and Andreessen
8 2(among others), contributed $97 million, which was enough to make them eligible to receive 4.96% of the
9
3initial supply of ICP tokens.' 819
10 4
63. On August 29, 2018, Defendant Williams (via his blog) announced the successful
completion
11 5of the Strategic and Private Presale mindingfunding round. According to Defendant Williams, this round
was led
12 6by “returning investors” Andreesen and Polychain, who raised approximately $l 11111 million in total for
13
7Dfinity’s “operations. 19”20
3 20
Dominic Williams, Announcing the Completion of DFINITY’s Presale Round, MEDIUM (Aug.
29,
27 2018), https://medium.com/dfinity/dfinitys-presale-round-completed-238da6b42fa1.
22
THIRD AMENDED CLASS ACTION
14 8
64. Ryan Zurrer, venture partner of Polychain, described the investment in Dfinity as
Polychain’s
15 9“largest-ever capital deployment. ”21 16
17
18
19
20
21
22
23
24
25
19
Id.
26
10
21
See supra, n.17.
4
20
See Gertrude Chavez-Dreyfuss, Blockchain project raises $61 million from Andreessen Horowitz,
U.S. hedge fund, REUTERS.COM (Feb. 7, 2018),
https://www.reuters.com/article/us-blockchain-investment-
andreessen/blockchain-project-raises-61-million-from-andreessen-horowitz-u-s-hedge-fund-
28 idUSKBN 1FRl IX. 23
THIRD AMENDED CLASS ACTION
1 65. The following chart from Messari, shows the total token distribution in the Genesis
allocation
i i 2 as of May 10, 2021:
I?IESSARI
12 Genesis Token Allocation . .. v.
13
14 44.575 228
15 Pmaab
16
24 725
17.795.770 3 79'% <50
3 763.448 0 00'K 50.0IXI•
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Ircenwt Comfaxer Aasooatxin 20.000.000
17 Taam Merr¥>ara 6d' 480 828
3
4
5
6
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18 DFIMTY Fa\adat
Preview
1 QUINN EMANUEL URQUHART & SULLIVAN, LLP Michael E. Liftik (CA Bar No. 232430) 2 Sarah Heaton Concannon (pro hac vice) 1300 I Street, Suite 900 3 Washington, D.C. 20005 4 Telephone: (202) 538-8000 michaelliftik@quinnemanuel.com 5 sarahconcannon@quinnemanuel.com 6 Emily C. Kapur (CA Bar No. 306724) 555 Twin Dolphin Dr., 5th Fl. 7 Redwood Shores, California 94065 8 Telephone: (650) 801-5000 emilykapur@quinnemanuel.com 9 [Additional Counsel on Signature Page] 10 Attorneys for Defendants Dfinity USA Research, LLC 11 and Dfinity Stiftung 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 13 COUNTY OF SAN MATEO 14 DANIEL OCAMPO, Individually and on Case No. 21-CIV-03843 15 Behalf of All Others Similarly Situated, DECLARATION OF MICHAEL E. 16 Plaintiff, LIFTIK IN SUPPORT OF 17 DEFENDANT DFINITY USA RESEARCH, LCC’S DEMURRER 18 v. TO THIRD AMENDED COMPLAINT 19 DFINITY USA RESEARCH LLC, DFINITY STIFTUNG, AH CAPITAL MANAGEMENT, 20 L.L.C., POLYCHAIN CAPITAL, DOMINIC Hon. Susan L. Greenberg WILLIAMS, and JOHN DOES 1-20, Dept. 22 – Ctrm. I 21 Date Action Filed: July 15, 2021 Defendants. Date: January 11, 2024 22 Time: 8:00 a.m. PT 23 24 25 26 27 28 Case No. 21-CIV-03843 DECLARATION OF MICHAEL E. LIFTIK ISO DEFENDANT DFINITY USA RESEARCH, LLC’S DEMURRER TO THIRD AMENDED COMPLAINT 1 I, Michael E. Liftik, declare: 2 1. I am an attorney at law licensed to practice before this Court and all of the courts of 3 the state of California. I am an attorney with the law firm Quinn Emanuel Urquhart & Sullivan, 4 LLP, counsel of record for Defendants Dfinity USA Research, LLC and Dfinity Stiftung. I am one 5 of the attorneys responsible for the representation of Defendants Dfinity USA Research, LLC and 6 Dfinity Stiftung in this matter and, as such, I have personal knowledge of the facts set forth in this 7 declaration. I am also counsel of record and one of the attorneys responsible for representation of 8 Dfinity USA Research, LLC, Dfinity Foundation and Dominic Williams in the action captioned 9 Valenti v. DFINITY USA Research LLC, et al., No. 21-cv-6118 (N.D. Cal.), currently pending in the 10 Northern District of California. If called as a witness for this purpose, I could and would testify 11 competently under oath to the facts stated herein. 12 2. Attached hereto as Exhibit A is a true and correct copy of a “redline,” generated using 13 the software program Change-Pro, that compares (1) Plaintiff’s September 9, 2022 Second 14 Amended Class Action Complaint for Violations of the Securities Act of 1933; with (2) Plaintiff’s 15 February 9, 2023 Third Amended Class Action Complaint for Violations of the Securities Act of 16 1933, both filed and served in connection with this matter. 17 18 Executed on this 5th day of September, 2023 in Washington, DC. 19 20 /s/ Michael E. Liftik Michael E. Liftik (CA Bar No. 232430) 21 22 23 24 25 26 27 28 -2- Case No. 21-cv-03843 DECLARATION OF MICHAEL E. LIFTIK ISO DEFENDANT DFINITY USA RESEARCH, LLC’S DEMURRER TO THIRD AMENDED COMPLAINT (;+,%,7A 1 John T. Jasnoch (CA 281605) SCOTT+SCOTT ATTORNEYS AT LAW LLP 2 600 W. Broadway, Suite 3300 San Diego, CA 92101 3 Telephone: 619-233-4565 Facsimile: 619-233-0508 4 jjasnoch@scott-scott.com 5 Counsel for PlaintiffDanielPlaintiff Daniel Ocampo 6 [Additional Counsel on Signature Page.] 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF SAN MATEO Behalf Case No. 21-CIV-03843 of All Others 10 DANIEL OCAMPO, Individually and on Similarly Situated, ii 11 Plaintiff, 27 SECOND AMENDED 28 CLASS ACTION 12 V’ COMPLAINT FOR VIOLATIONS OF THEv. 13 DFINITY USA RESEARCH LLC, DFINITY SECURITIES ACT OF 1933 FOUNDATION STIFTUNG, AH CAPITAL 14 MANAGMENT, 14 POLYCHAIN CAPITAL, DOMINIC WILLIAMS, and JOHN DOES 1-20, 15 Defendants. 16 17 18 19 20 21 22 23 24 25 THIRD AMENDED CLASS ACTION 26 JURY TRIAL DEMANDED SECOND AMEDED CLASS ACTION COMPLAINT Case No. 21-CIV-03843 THIRD AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 JURY TRIAL DEMANDED THIRD AMENDED CLASS ACTION COMPLAINT 1 Plaintiff Daniel Ocampo (“Plaintiff’”), individually and on behalf of all others similarly situated, by 2 PlaintiffsPlaintiff’s undersigned attorneys, alleges the following based upon personal knowledge as to PlaintiffsPlaintiff’s 3 own acts, and upon information and belief as to all other matters based on the investigation conducted by 4 and through Plaintiff ’s attorneys, which included, among other things, a review of governmental filings 5 and commentary, publicly available reports and information, analyst and media reports, and other 6 commentary analysis. Plaintiff ’s investigation into the matters alleged herein is continuing and many 7 relevant facts are known only to, or are exclusively within the custody and control of, the Defendants. 8 Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein 9 after a reasonable opportunity for formal discovery. 10 NATURE AND SUMMARY OF ACTION 11 i i 1. Plaintiff brings this securities class action under §§5, 12(a)(1), and 15 of the Securities Act 12 of 1933 (the “Securities Act”) against (1) Dfinity USA Research LLC (“Dfinity USA Research” or the 13 “Company”); (2) Dfinity’s 13parent organization,the Dfinity Foundation Stiftung (“the “Foundation”,” together with the Company, collectivelyDfinity USA Research, 14 referred to as “Dfinity”); (3) Polychain Capital (“Polychain”); (4) AH Capital Management LLC15 (“Andreessen”); and 15 (5) Dfinity’s controlling executive and director, Dominic Williams (“Williams,” together with16 Polychain 16 and Andreessen, to as the “Controlling Defendants ”).1 Plaintiff alleges that Defendants sold17 unregistered 17 securities to investors in violation of the Securities Act. Defendants are liable in their18 capacities as issuers, 18 statutory sellers, and/or direct or indirect offerors of ICPInternet Computer Project tokens (“ICP tokens” or 19 “ICP”). 1 1 ' Dominic Williams, Announcing DFINITY Fundraising Plans, and a Massive Welcome to Polychain Capital and Andreessen Horowitz (Feb. 7, 2018), https://medium.com/dfinity/announcing-dfinity- fundraising-plans-and-a-massive-welcome-to-po1ychain-capital-and-andreessen-2ceb34769cd3 (last 24visited May 20, 2021). 2 See id.251 The Foundation, Dfinity USA Research and the Controlling Defendants are collectively referred to 28 as “Defendants.” 1 SECONDTHIRD AMENDED CLASS ACTION COMPLAINT Case No. 21—-CIV—-03843 1920 2. Plaintiff brings this action on behalf of all investors who purchased Internet Computer 20Project tokens (“ICP” tokens) on or after 21 May 10, 2021, and werewas damaged thereby. 22 213. ICP qualifyqualifies as securitiesa security under Section §2(a)(1) of the Securities Act, 15 U.S.C. §77b(a)(1).22 The 23 purchase of ICP constitutes an investment contract assince ICP purchasers, including Plaintiff, provided 24 23consideration (in the form of flatfiat, i.e., U.S. dollars or other cryptocurrencies) in exchange for ICP. ICP is 25 24an investment in a common enterprise and purchasers reasonably expected to derive profits from their 26 25ownership of ICP. Defendants promoted this profit motive as a reason to purchase ICP. 2627 28 Dfinity, DF, and the Controlling Defendants are collectively referred to as “Defendants.” i 2 SECONDTHIRD AMENDED CLASS ACTION COMPLAINT Case No. 21—-CIV—-03843 1 14. No registration statements have been filed with the U.S. Securities and Exchange 2 Commission (“SEC”) or have been in effect with respect2 to the ICP offerings alleged herein. 3 5. All 469,213,710 ICPICPs made available during the “Genesis” listing event were created out 4 of4 thin air by Dfinity. At least twenty-four percent (24%) of all ICPICPs in existence, were given to the Controlling5 Defendants, in 5 particular, Polychain and Andreessen. 6 6. Defendants have since earned massive profits by selling the retained ICP to the public, 7 without complying with federal securities laws, in what is essentially an ongoing initial coin offering 8 (“ICO”). Like in an initial public offering (“IPO”), in an ICO, digital assets are sold to consumers in exchange9 for 9 legal tender or other cryptocurrencies (most often Bitcoin and Ethereum). 10 7. Defendants sell ICP from the retained supply and use the proceeds from the sales to fund i i 11 Company operations, to reward investors, and as governance tokens. 12 8. In order to increase demand for ICP, and thereby increase the profits derived by selling ICP, 13 Defendants portray ICP as a good investment, solicit sales, and express optimistic and misleading 14 predictions on ICP’s ability to disrupt established technologies. Dfinity greatly increased these efforts to 15 push ICP on the general public in recent years and months. 16 9. These solicitation efforts were conducted by interstate means, as were the sales of ICP. 17 JURISDICTION AND VENUE 18 10. The Court has subject -matter jurisdiction over this action pursuant to the California 19 Constitution, Article VI, and §§10 and 22 of the Securities Act, 15 U.S.C. §77v. The claims alleged herein 20 arise20 under §§5, 12(a)(1), and 15 of the Securities Act. See 15 U.S.C. §§77e, 77177l, and 77o. Section 22 of 21 the21 Securities Act, 15 U.S.C. §77v(a), expressly states that “[e]xcept as provided in section 77p(c) of this 22 title,22 no case arising under this subchapter and brought in any State court of competent jurisdiction shall be 23 removed to any court of the United States.” See 15 U.S.C. §77v(a). Section 77p(c) refers to “covered class 24 action[s] brought in any24 State court involving a covered security, as set forth in subsection (b),” and 28 3 SECONDTHIRD AMENDED CLASS ACTION COMPLAINT Case No. 21—-CIV—-03843 25 subsection (b) of §77p in turn25 includes within its scope only covered class actions “based upon the statutory 26 or common law of any State26 or subdivision thereof.” See 15 U.S.C. §77p. This is an action asserting only 27 federal law claims. Thus, this27 action is not removable to federal court. 28 28 4 SECONDTHIRD AMENDED CLASS ACTION COMPLAINT Case No. 21—-CIV—-03843 1 11. Venue is proper in this jurisdiction pursuant to the provisions of California Code of Civil 2 Procedure §395(a) because certain Defendants reside in San Mateo County. 3 12. This Court has personal jurisdiction over Defendants as a result of acts of Defendants 4 occurring in and/or aimed at the stateState of California in connection with Defendants’ unregistered offer and 5 sale of securities in violation of §§5, 12(a)(1), and 15 of the Securities Act. 6 13. This Court also has personal jurisdiction over Defendants because they reside in or have their 7 principal places of business in California. 8 PARTIES 9 14. Plaintiff Daniel Ocampo is an individual and a resident of the State of California. Plaintiff 10 made purchases of ICP Tokenstokens shortly after the opening of the Genesis Launch on May 10, 2021, through i i 11 June 25, 2021, on the U.S. -based cryptocurrency exchange Coinbase, and suffered losses on those 12 investments as a result of the scheme alleged herein. Leading up and following his initial purchase of 13 ICP, Plaintiff saw promotions from the Foundation on YouTube, as well as those on the Dfinity 14 website. Plaintiff also signed up through the Dfinity website to receive updates and further 15 information regarding the Internet Computer Project and ICP tokens. The Foundation sent out email 16 blast promotions to Plaintiff during the Relevant Period, and the email address URLs for these 17 solicitations were all from “dfinity.org” 18 1315. Defendant Dfinity USA Research LLC is a Delaware corporation with its principal place of 19 14business at 411 Acacia Avenue, Palo Alto, California 94306. Dfinity operates as a U.S.-based subsidiary of 15its parent organization,one of the so-called 20 “research centers” of the Dfinity Foundation and exists to allow the latter to operate within the United States. 21 1616. Defendant Dfinity Foundation is a Zurich-based not-for-profit organization or “stiftung,” and 22 17is the true corporate entity behind all of ICP’s operations. The Foundation further elaborates on its structure 23 28 in the “about” section for the recruiting page on its website: “The DFINITY Foundation operates 5 SECONDTHIRD AMENDED CLASS ACTION COMPLAINT Case No. 21—-CIV—-03843 globally 24 with research centers in Zurich and San Francisco as well as team members working remotely across North 25 America, Europe and Asia.”2 The Foundation, with the aid of its employees working remotely and/or within 26 27 2 Join the Movement, DFINITY, https://dfinity.org/about#jobs (last visited Feb. 9, 2023). 28 28 6 SECONDTHIRD AMENDED CLASS ACTION COMPLAINT Case No. 21—-CIV—-03843 1 California at its research center, Dfinity USA Research, created ICP and, at all relevant times,18 solicited 2 purchases of ICP by Plaintiff and the Class for its own benefit and the benefit of its executives and19 owners. 3 2017. Defendant Dominic Williams is the Founder, the President, a member of the Board of 4 Directors,21 and the Chief Scientist of Dfinity and Internet Computer projectProject and has been since October 2016. 5 Williams is22 a resident of Santa Clara County. Williams exercised control over Dfinity and directed and/or 6 authorized,23 directly or indirectly, the sale and/or solicitation of ICP to the public. 7 2418. Defendant AH Capital Management (“Andreessen”) is a private venture capital firm founded25 in 2009. 8 Andreessen is a California company with its headquarters in Menlo Park, California in this County. 9 26Andreessen exercised control over Dfinity and directed and/or authorized, directly or indirectly, the sale 10 27and/or solicitation of ICP to the public. Andreesen is also known by “AH Capital Management, L.L.CLLC.” 28 7 THIRD AMENDED CLASS ACTION 11 119. Defendant Polychain Capital is a cryptocurrency investment firm managing portfolios of 12 2digital assets and has been since 2016. Polychain is headquartered in San Francisco, California. Polychain 13 3exercised control over Dfinity and directed and/or authorized, directly or indirectly, the sale and/or 14 4solicitation of ICP to the public. 15 520. The defendants referred to in $$¶¶17-19 are referred to as the “Controlling Defendants.” 16 6SUBSTANTIVE ALLEGATIONS 17 7A. Background of Cryptocurrency 18 821. A cryptocurrency is a digital asset designed to work as a medium of exchange or a store of 19 9value or both. Cryptocurrencies use various cryptographic principles to secure transactions, control the 20 10creation of additional units, and verify the transfer of the underlying digital assets. 21 i i 22. Created in 2009, Bitcoin was the world’s first decentralized cryptocurrency. 22 1223. With a market capitalization of approximately $1.4 trillion, Bitcoin is also at the top of the 23 13cryptocurrency market by a wide margin. 24 1424. Bitcoin fiinctionsfunctions as a ledger that tracks the ownership and transfer of every bitcoinBitcoin in 25 15existence. This ledger is called a blockchain. 26 27 28 8 THIRD AMENDED CLASS ACTION 1 1625. Blockchains act as the central technical commonality across most cryptocurrencies. While 2 17each blockchain may be subject to different technical rules and permissions based on the preferences of its 3 18creators, they are typically designed to achieve the similar goal of decentralization. 4 1926. Accordingly, blockchains are generally designed as a framework of incentives that 5 20encourages some people to do the work of validating transactions while allowing others to take advantage 6 21of the network. In order to ensure successful validation, those completing the validation are also required 7 22to solve a “Proof of Work” problem by expending computational resources, which has the effect of making 8 23a blockchain more accurate and secure. For Bitcoin, those who validate the blockchain transactions and 9 24solve the “Proof of Work” program are rewarded with newly minted bitcoinBitcoin. This process is colloquially 10 25referred to as “mining.” Mining is one method by which an individual can acquire cryptocurrencies like 11 26Bitcoin. A second and more common manner is to obtain cryptocurrencies from someone else. This is 12 27often accomplished by acquiring it through an online “cryptocurrency exchange.” 28 9 THIRD AMENDED CLASS ACTION 13 127. Online cryptocurrency exchanges are one place to purchase bitcoin Bitcoin and other 14 2cryptocurrencies. These exchanges are similar to traditional exchanges in that they provide a convenient 15 3marketplace to match buyers and sellers of virtual currencies. 16 428. In April 2013, there were only seven cryptocurrencies listed on coinmartketcapcoinmarketcap.com, a 17 5popular website that tracks the cryptocurrency markets. As of this filing, the site monitors more than 2,0008,000 18 6cryptocurrencies. 19 729. Another popular cryptocurrency, Ethereum, was designed to enable “smart contract” 20 8functionality unlike Bitcoin’s blockchain. 21 930. A smart contract is a program that verifies and enforces the negotiation or performance of 22 10a contract.Smart contracts can be self-executing and self-enforcing, which theoretically reduces the i i 23 transaction costs associated with traditional contracting. By way of example of how a smart contract works, 24 12consider a situation where two people want to execute a hedging contract. They each put up $1,000 worth 25 13of ether. They agree that, after a month, one of them will receive back $1,000 worth of ether at the dollar 26 14exchange rate at that time, while the other receives the rest of the ether. The rest of the ether may or may 27 15not be worth more than it was at the beginning of the month. 28 10 THIRD AMENDED CLASS ACTION 1 A smart contract enables these two people to submit the ether to a secure destination and 1631. 2 17automatically distribute the ether at the end of the month without any third-party action. The smart contract 3 18self-executes with instructions written in its code which get executed when the specified conditions are 4 19met. 5 2032. By the end of 2016, interest in cryptocurrencies like Bitcoin, Ethereum, and other “alt coins” 6 21began to accelerate, with prices growing at a rate historically unprecedented for any asset class. Over the 7 22course of 2017 alone, bitcoinBitcoin’s price increased from approximately $1,000 to approximately $20,000. 8 23Ethereum’s growth was even more startling. On January 1, 2017, Ethereum was trading at approximately 9 24$8 per ether. Approximately one year later, it was trading at over $1,400 per ether —‒ a return of 10 25approximately 17,000 percent% over that period. 11 2633. Seeking to capitalize on the growing enthusiasm for cryptocurrencies, many entrepreneurs 12 27sought to raise funds through ICOs. 28 5 11 THIRD AMENDED CLASS ACTION 13 134. Between 2017 and 2018, nearly $20 billion was raised through ICOs. None of these ICOs 14 2was registered with the SEC. 15 335. These ICOs were typically announced and promoted through public online channels. 16 4Issuers typically released a “whitepaper” describing the project and terms of the ICO and promoted the sale 17 5of the tokens. They typically advertised the creation of a “new blockchain architecture.” 18 636. The whitepapers contained vastly less information than would have been included in an 19 7SEC registration statement. For example, whitepapers (just like the ICP whitepaper23) typically did not 20 8include a “plain English” description of the offering; a list of key risk factors; a description of important 21 9information and incentives concerning management; warnings about relying on forward-looking 22 10statements; an explanation of how the proceeds from the offering would be used; or a standardized format i i 23 that investors could readily follow. 24 1237. As a result of the lack of information, trading of tokens on exchanges such as Coinbase and 25 13Binance was rife for manipulation. 26 27 2 1 3 See Timo Hanke, Mahnush Movahedi & Dominic Williams, et al., DFINITY Technology Overview Series Consensus System, DFINITY STIFTUNG (Jan. 23, 2018), https://dfinity.org/pdf-viewer/pdfs/viewer?file=.. 24 28 / library/dfinity-consensus.pdf. 12 THIRD AMENDED CLASS ACTION 1 1438. For example, the Tezos Foundation had an ICO in 2017, which raised $232 million for the 2 15company and insiders. This ICO, however, resulted in a class action lawsuit that settled for $25 million.34 3 16Commentators viewed this settlement as a means to avoid a possible future enforcement action by the SEC 4 17for the sale of an unregistered security. 45 According to Quentin Herbrecht, Chief Executive Officer (“CEO ”) 5 of blockchain marketing18 platform Markchain, that the plaintiffs in that action “think that Tezos agreed to settle 6 this fine to prevent19 the SEC from re-characterizing their ICO as illegal securities offering, and this could 7 have been a fatal20 blow to the project. 5”6 21 22 23 25 3 1 4 Lucas Cacioli, Tezos Settles Class-Action Lawsuit Over 2017 $232 Million ICO to the Tune of $25 20 Million, BLOCKCHAIN.NEWsNEWS (Sept. 2, 2020), https://blockchain.news/news/tezos-settles-class-action- lawsuit-over-2017-XTZ-232-million-25-million. 26 Osato Avan-Nomayo, Tezos Likely Avoiding SEC Action With $25M Class-Action Lawsuit Settlement, COINTELEGRAPH.COM (June 28, 2020), https://cointelegraph.com/news/tezos-likely-avoiding- 27sec-action-with-25m-class-action-lawsuit-settlement. 21 4z 2 Id.5 Osato Avan-Nomayo, Tezos Likely Avoiding SEC Action With $25M Class-Action Lawsuit Settlement, COINTELEGRAPH (June 28, 2020), https://cointelegraph.com/news/tezos-likely-avoiding-sec- action-with-25m-class-action-lawsuit-settlement. 23 5 3 Id. 6 4 Id. 13 THIRD AMENDED CLASS ACTION 8 1 39. Similarly, in 2018, Block.One’s held an ICO for the EOS blockchain. After a year-long 9 2offering, Block.One raised a staggering $4.1 billion for the company and insiders.‘7 Shortly after the ICO 10 3was completed, on September 30, 2019, the Securities and Exchange Commission (“SEC”) completed an4 investigation and found that one Issuerissuer, 11 Block.one, had violated the Securities Act by selling the digital5 token EOS, an unregistered security, to the 12 public. As a result of this SEC enforcement action, Block.one6 was required to pay a $24 million fine.78 13 7 40. The founder of another cryptocurrency exchange (Bibox), Aries Wanlin Wang, previously 14 8noted that the secondary market for digital assets can be “rigged by manipulators. If you put major 15 9currencies such as Bitcoin and Ethereum aside, many of the tokens you’ll find issued through ICOs are 16 10there to be manipulated. 8”9 17 18 ii 19 24 22 5 7 Brady Dale, The First Yearlong ICO for EOS Raised $4 Billion. The Second? Just $2.8 Million, COINDESK (Sept. 17, 2019), https://www.coindesk.com/the-first-yearlong-ico-for-eos-raised-4-billion-the- 25 second-just-2-8-million. 6 ' 7 Dfinity, A Closer Look at Software Canisters, an Evolution of Smart Contract (Oct. 7, 2020),23https://medium.com/dfinity/software-canisters-an-evolution-of-smart-contracts-internet-computer- fl f92f lbfffb.248 Press Release, U.S. Securities and Exchange Commission, SEC Orders Blockchain Company to 26 Pay $24 Million Penalty for Unregistered ICO (Sept. 30, 2019), https://www.sec.gov/news/press- release/2019-202; SEC Release No. 10714, 2019 WL 4793292 (Sept. 30, 2019). 9 8 Aries Wanlin Wang, Crypto Economy: How Blockchain, Cryptocurrency, and Token-Economy Are Disrupting the Financial World (2018). 27 14 THIRD AMENDED CLASS ACTION 1 41. According to Mr. Wang, “[t]hese tokens are similar to penny stocks. And everyone wants 2 12to believe they’ve discovered the next Bitcoin and Ethereum.”10 3 1342. Mr. Wang also candidly acknowledged that: 4 14[t]heThe problems facing the secondary market in crypto are similar to the problems that were faced by American stock exchanges 100 years ago. When a market lacks certain 5 15regulations and oversights, predictable things happen. Pump and dumps are very common in the secondary market of cryptocurrency, just as they were on the US stock exchange 6 16so many years ago. Fraudsters spreading false news about new crypto in a chat room have a great deal in common with con artists who sent false telegrams with information that 7 17might impact a stock in 1919. In any traditional financial market, the practice of market manipulation is illegal. And it should be. The lack of regulation that lets some people 8 18make a quick dollar hurts everyone else because it hurts our faith in the system.” 9 19[Emphasis added.] 10 2043. Notably, Bibox was one of only four cryptocurrency exchanges that have excluded ICP 11 21from trading. 22 236 Brady Dale, The First Yearlong ICO for EOS Raised $4 Billion. The Second? Just $2.8 Million, COINDESK.COM (Sept. 17, 2019), https://www.coindesk.com/the-first-yearlong-ico-for-eos-raised-4- 24billion-the-second-just-2-8-million. Press Release, SEC Orders Blockchain Company to Pay $24 Million Penalty for Unregistered ICO 25 (Sept. 30, 2019), https://www.sec.gov/news/press-release/2019-202; SEC Release No. 10714, 2019 WL 26 4793292 (Sept. 30, 2019). ' Aries Wanlin Wang, Crypto Economy. How Blockchain, Cryptocurrency, and Token-Economy Are 27Disrupting the Financial World (2018). 28Id. 7 12 1B. The Background of ICP 13 244. Dfinity’s so-called “Internet Computer” project purports to be a decentralized version of the 14 3internet itself. In essence, it is a smart contract platform designed to power blockchain versions of the 15 4internet’s most popular applications —– decentralized alternatives to WhatsApp, LinkedlnLinkedIn, eBay, TikTok, 16 etc. 5— – which would displace the need to use centralized, gatekeeping hosting services like Amazon Web 1 17 6Mike 11 ' 011Ingrid Lunden, DFINITY raises $102M from a16z and Polychain for a decentralized Butcher & Services. ‘Internet Computer’ to rival AWS, TECHCRUNCH (Aug. 29, 2018), 15 THIRD AMENDED CLASS ACTION 18 745. The purported native cryptocurrency for Dfinity’s Internet Computer projectProject is the ICP 19 8token. Thus, ICP is both an investment in the Company (as sales are used to fund Company operations with 20 9the expectation that such investments in the Company will increase the value of ICP) and an investment in 21 10itself (with the expectation that the value of ICP will increase), as well as a means of exchange and i i 22 governance promoted by Dfinity. 23 1246. Unlike cryptocurrencies such as Bitcoin and Ethereum, which are mined by computer 24 13hardware validating transactions on their networks, all 469,212, 166.84 ICP tokens in existence were simply 25 14created by Dfinity in May 2021 as a part of the Company’s fiinctionalfunctional equivalent of an ICO (the “Genesis 26 10 Id. AWS, TECHCRUNCH (Aug. 29, 2018), 27 https://techcrunch.com/2018/08/29/dfinity/. 16 THIRD AMENDED CLASS ACTION 1 15Launch”). As discussed more thoroughly below (see supra, Section B) a significant amount of the total ICP16 supply was given to 2 the Controlling Defendants, with the remaining amount left retained by Dfinity. 3 1747. Dfinity’s plan was to publicly offer the ICP tokens it created and retained for sale to retail 4 18investors when the tokens were listed on various cryptocurrency exchanges. Dfinity would then use the 5 19proceeds to fiindfund the Foundation’s operations, including, but not limited to, the Internet Computer Project 6 20or “ICP.” 7 2148. The Controlling Defendants have financially benefitted from their ICP being merchandized 8 and22 enabled the large-scale launch through their connection to the largest cryptocurrency exchanges that 9 made23 ICP widely available to the public. 10 2449. Defendants have control over how many ICP tokens are in the market. 25 26 2710 Mike Butcher & Ingrid Lunden, DFINITY raises $102M from a16z and Polychain for a decentralized ’Internet Computer’ to rival AWS, TECHCRUNCH (Aug. 29, 2018), 28https://techcrunch.com/2018/08/29/dfinity/. 11 150. No registration statement has been filed for ICP with the SEC and no registration statement 12 2is in effect for ICP. 13 3C. Polychain and Andreessen Horowitz Are Significant Stakeholders of ICP 14 451. In February 2017, Dfinity held a “Seed” fiindraisingfundraising round for the Company to use for its 15 5operations and investments in projects developed using ICP technology, receiving approximately $40 16 6million in flatfiat cash and digital assets “primarily from enthusiasts who followed the project.”' 112 17 7 52. Dfinity initially promised the “Seed Contributors” that the Company would run a “Main” 18 8fundraising round, akin to an ICO, at which time the seed contributors could cash out.1213 12 1 Dominic Williams, Announcing DFINITY Fundraising Plans, and a Massive Welcome to Polychain Capital and Andreessen Horowitz, MEDIUM (Feb. 7, 2018), https://medium.com/dfinity/announcing- dfinity-fundraising-plans-and-a-massive-welcome-to-polychain-capital-and-andreessen-2ceb34769cd3. 26 13 2 See id. 17 THIRD AMENDED CLASS ACTION 19 9 53. “However,” as noted in a May 21, 2021 ICP analyst report, “after the 2017 boom, the project 20 10realized its valuation target was set too low” and the Company believed that “running an ICO fundraiser ii 21 could have placed it in a grey legal territory where securities law was concerned.”””14 22 1254. Upon information and belief, Polychain and Andreessen were among those initial 23 13“enthusiasts” who were the Seed Contributors to ICP. 27 25 3 14 Mira Christanto & Wilson Withiam, An Introduction to Dfinity and the Internet Computer, MESSARI (May 10, 2021), https://messari.io/article/an-introduction-to-dfinity-and-the-internet-computer 28 (emphasis added). 18 THIRD AMENDED CLASS ACTION 1 1455. The single “Main” round of Dfinity’s funding model was subsequently changed to a two- 2 15part model. First, Dfinity would hold “Strategic” and “Private Presale” fundraising rounds. Second, Dfinity 3 16would hold what for all intents and purposes was the very same type of ICO-style fundraiser Defendant 4 17Williams claimed might run afoul of securities laws. 5 1856. Defendant Williams conceded that Dfinity needed to change the original model because the 6 19Foundation’s initial promise would have capped the Seed Contributors’ returns with a “figure that we later 7 20realized was far too low —– this would hardly satisfy a single large player now, and it’s clear our years in the 23 21crypto trenches had left us completely unprepared for the explosion in scale of the crypto industry. ” 8 14 15 221' Mira Christanto & Wilson Withiam, An Introduction to Dfinity and the Internet Computer (May 10, 2021) https://messari.io/article/an-introduction-to-dfinity-and-the-internet-computer (emphasis 26 added). 27 14 Dominic Williams, Announcing DFINITY Fundraising Plans, and a Massive Welcome to Polychain Capital and Andreessen Horowitz (Feb. 7, 2018), https://medium.com/dfinity/announcing-dfinity- 28 9 19 THIRD AMENDED CLASS ACTION 9 1 57. In response, Defendant Williams and Dfinity designed this two-part funding model so that it 10 2would “ensure the position of Seed participants will receive 24.72% of the network tokens that will exist at 11 3Genesis . . . however much future mindingfunding is now raised.”' 516 12 4 58. Sometime around January or February 2018, Dfinity ultimately held the “Strategic” 13 5fundraising round. 14 659. Andreessen and Polychain participated in this fundraising round as well, jointly contributing 15 7another $61 mil1ionmillion.1617 16 8 60. The “Strategic Round” investors were entitled to receive 7% of the initial supplesupply of ICP 17 9tokens.1718 18 10 61. As described in Defendant Williams’s February 7, 2018 blog post “Announcing DFINITY i i 19 Fundraising Plans, and a Massive Welcome to Polychain Capital and Andreessen Horowitz”: 20 12[Dfinity] also decided that before going any fiirtherfurther, we would raise a “Strategic” fundraising round that would bring in key partners who could help accelerate progress of 21 13our project. Polychain Capital— ‒ a successfiilsuccessful and now famous crypto hedge fiindfund backed by Andreessen Horowitz, Sequoia, USV, Founders Fund and many other notable LPs —‒ 22 14contacted us during the summer of 2017, while we were still only an “aficionado’s” project not many people knew about, and we found we worked extremely well with them. They 23 24 15 See supra, n.12. 2 17 See Gertrude Chavez-Dreyfuss, Blockchain project raises $61 million from Andreessen Horowitz, 26 U.S. hedge fund, REUTERS (Feb. 7, 2018), https://www.reuters.com/article/us-blockchain-investment- andreessen/blockchain-project-raises-61-million-from-andreessen-horowitz-u-s-hedge-fund-idUSK BN1F 27 R1IX. 17 3 Mira Christanto & Wilson Wthiam, An Introduction to Dfinity and the Internet Computer (May 10, 2021) https://messari.io/article/an-introduction-to-dfinity-and-the-internet-computer (emphasis added).18 See supra, n.14. 28 20 THIRD AMENDED CLASS ACTION 16 Id. 25 15 21 THIRD AMENDED CLASS ACTION 1 are distinguished by bullish optimism about what our industry can achieve balanced by realism and operational smarts. 16 2 It was decided that Polychain would lead a relatively small round, and also help establish a 3 17substantial “DFINITY Ecosystem Venture Fund” that will now fiindfund projects building on the DFINITY Internet Computer or otherwise supporting it. Andreessen Horowitz, one of 4 18Silicon Valley’s preeminent venture capital fiindsfunds joined the round too, who are also well known for their forward thinking and the support they provide to investee projects. Today 5 19it was announced that, with the DFINITY Ecosystem Venture Fund, total mindingfunding for our project will exceed $100M. With this, you can expect DFINITY to begin to emerge from 6 20the dark. 21 22 23 fundraising-plans-and-a-massive-welcome-to-po1ychain-capital-and-andreessen-2ceb34769cd3 visited May 20, 2021) (emphasis added). 24 15 Id. (last 16 25 See Gertrude Chavez-Dreyfuss, Blockchain project raises $61 million from Andreessen Horowitz, U.S. hedge fund, REUTERS.COM (Feb. 7, 2018), https://www.reuters.com/article/us-blockchain-investment- 26andreessen/blockchain-project-raises-61-million-from-andreessen-horowitz-u-s-hedge-fund- idUSKBN 1FRl IX.27 7 162. Later in August 2018, Dfinity held its “Private Presale,” wherein Polychain and Andreessen 8 2(among others), contributed $97 million, which was enough to make them eligible to receive 4.96% of the 9 3initial supply of ICP tokens.' 819 10 4 63. On August 29, 2018, Defendant Williams (via his blog) announced the successful completion 11 5of the Strategic and Private Presale mindingfunding round. According to Defendant Williams, this round was led 12 6by “returning investors” Andreesen and Polychain, who raised approximately $l 11111 million in total for 13 7Dfinity’s “operations. 19”20 3 20 Dominic Williams, Announcing the Completion of DFINITY’s Presale Round, MEDIUM (Aug. 29, 27 2018), https://medium.com/dfinity/dfinitys-presale-round-completed-238da6b42fa1. 22 THIRD AMENDED CLASS ACTION 14 8 64. Ryan Zurrer, venture partner of Polychain, described the investment in Dfinity as Polychain’s 15 9“largest-ever capital deployment. ”21 16 17 18 19 20 21 22 23 24 25 19 Id. 26 10 21 See supra, n.17. 4 20 See Gertrude Chavez-Dreyfuss, Blockchain project raises $61 million from Andreessen Horowitz, U.S. hedge fund, REUTERS.COM (Feb. 7, 2018), https://www.reuters.com/article/us-blockchain-investment- andreessen/blockchain-project-raises-61-million-from-andreessen-horowitz-u-s-hedge-fund- 28 idUSKBN 1FRl IX. 23 THIRD AMENDED CLASS ACTION 1 65. The following chart from Messari, shows the total token distribution in the Genesis allocation i i 2 as of May 10, 2021: I?IESSARI 12 Genesis Token Allocation . .. v. 13 14 44.575 228 15 Pmaab 16 24 725 17.795.770 3 79'% <50 3 763.448 0 00'K 50.0IXI• hiode Operatore 1.0s0.0tAI SY Ircenwt Comfaxer Aasooatxin 20.000.000 17 Taam Merr¥>ara 6d' 480 828 3 4 5 6 Ad uaora a rd Otfa 7hrd-@ rlwa 7 18 DFIMTY Fa\adat