Holsworth v. BProtocol Foundation

Background

Timothy C. Holsworth brought the action individually and on behalf of a proposed class. He alleged that he purchased 587 BNT digital coins on September 4, 2019, through COSS, a digital exchange in Singapore, while purchasing from Wisconsin, for $212.50. BProtocol Foundation, which the opinion identifies as Bancor, issued BNT and conducted an initial coin offering in 2017. The complaint alleged that BNT was a security and that Bancor and its promoters made false statements and omissions that led investors to believe otherwise.

The Second Amended Complaint asserted 102 claims. One hundred were state “blue sky” claims, and two arose under Sections 5 and 12(a)(1) of the Securities Act of 1933. Holsworth sought rescission and damages based on the alleged issuance, promotion, and sale of unregistered securities. The individual defendants were identified as Bancor’s co-founders and chief technology officer.

Defendants’ Motion

The defendants moved to dismiss for lack of Article III standing, lack of personal jurisdiction, forum non conveniens, and failure to state a claim. They also argued that Holsworth had not plausibly alleged that the tokens he bought had declined in value or that he bought them from Bancor or in connection with Bancor’s initial coin offering.

Standing

Article III standing requires an injury in fact, a connection between the injury and the challenged conduct, and a likelihood that a favorable decision would remedy the injury. The court held that Holsworth had not plausibly alleged an injury in fact. The complaint did not allege that his coins had lost value. Materials submitted with a lawyer’s declaration showed only that he had bought the coins and had not sold them as of an unspecified date. The court concluded that the rescission claim lacked a factual or legal foundation and that Holsworth had not plausibly alleged injury, causation, or an appropriate remedy.

Personal Jurisdiction

Holsworth argued that the court had specific personal jurisdiction because the defendants promoted Bancor and solicited BNT sales at cryptocurrency conferences in the United States, including New York, and used social media to promote Bancor’s services. The court found those promotional activities insufficient. It held that specific jurisdiction required a causal relationship between a defendant’s wrongful conduct in or directed at the forum and the plaintiff’s injury, and that no such relationship had been alleged. The court therefore held that it lacked personal jurisdiction over the defendants.

The court also denied the request for jurisdictional discovery, which is discovery aimed at obtaining facts relevant to whether the court has authority over the defendants. It found no basis for what it described as a fishing expedition, particularly because Holsworth had not made a preliminary showing supporting jurisdiction and the court also found a standing problem.

Additional Defects

The court stated that, even if jurisdiction existed, the claims had additional problems. For the federal securities claims, it found no allegation of a direct relationship between Holsworth and a statutory seller, no allegation that the defendants directly contacted him, and no allegation that he purchased the securities because of the defendants’ active solicitation. The court also stated that federal securities laws do not reach purchases and sales outside the United States, that the state claims did not allege a sufficient connection to the relevant states, and that the one-year limitations period for the federal claims could not be satisfied. It rejected the alleged concealment as a basis for extending that period.

The court further stated that New York was not a reasonable or convenient place for the litigation, even though the defendants’ business location might have changed, because the complaint alleged that Bancor had offices in Israel and continued doing business through its Israeli principals.

Disposition

The court granted the defendants’ motion to dismiss. It denied Holsworth’s request to re-plead and his request for jurisdictional discovery, cancelled the scheduled oral argument, directed the Clerk to terminate the civil action and the motion, and directed entry of judgment in favor of the defendants with costs taxed. The opinion does not state that the dismissal was with or without prejudice.