Valenti v. Dfinity USA Research LLC

Background

This securities action concerns claims involving ICP tokens. Defendants moved to dismiss the plaintiffs’ second amended complaint.

Securities Act claims

The plaintiffs asserted claims under Sections 12(a)(1) and 15 of the Securities Act. Defendants argued that these claims were barred by Section 13’s three-year statute of repose, which sets a deadline that generally cannot be extended based on when a claim is discovered.

Defendants argued that the three-year period began when ICP was first genuinely offered to the public. They relied on allegations that, in February 2017, the Foundation announced public “seed” and “main” fundraising rounds, in which participants made donations and were expected eventually to receive ICP tokens in proportion to their donations. The plaintiffs responded that no ICP tokens were issued, sold, or made available for trading before August 8, 2018. The court held that, based on the current pleadings and briefing, the Section 12(a)(1) and Section 15 claims were time-barred and dismissed them.

Exchange Act claims

The court dismissed the plaintiffs’ Section 10(b) claim as inadequately pleaded. Section 10(b) and Rule 10b-5 claims require allegations of a material misrepresentation or omission, knowledge or reckless disregard of falsity, a connection to the purchase or sale of a security, reliance, economic loss, and loss causation. Securities-fraud allegations must also be stated with particularity under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act.

The court agreed with defendants that the plaintiffs had not adequately pleaded falsity and scienter, meaning the required state of mind. Among other things, the court noted that transfers are not necessarily sales, that allegations based on an Arkham Intelligence report and a group of DFINITY employees lacked particularized facts showing why those sources were reliable, and that allegations that Williams “must have known” were conclusory. Because the plaintiffs had not adequately pleaded a predicate securities-law violation, the court also dismissed the Section 20A claim and the Section 20(a) control-person claims.

Disposition

The court granted defendants’ motion to dismiss and dismissed the second amended complaint with leave to amend. For all claims dismissed in the order, the plaintiffs received a final opportunity to amend by April 8, 2025. The court stated that failure to meet that deadline without express approval would result in dismissal of the case under Federal Rule of Civil Procedure 41(b).