IN RE BIBOX GROUP HOLDINGS LIMITED SECURITIES LITIGATION

Background

Alexander Clifford brought a putative class action against Bibox Group Holdings Limited, Bibox Technology Ltd., Bibox Technology Ou, Wanlin “Aries” Wang, Ji “Kevin” Ma, and Jeffrey Lei. The complaint asserted 154 causes of action concerning six crypto-assets: BIX, EOS, TRX, OMG, LEND, and ELF. It alleged that the defendants violated federal securities laws and state Blue Sky laws by selling the tokens without required registrations and by operating an unregistered exchange, broker, or dealer. Clifford also asserted claims based on alleged false statements and omissions concerning BIX.

Clifford purchased BIX in two transactions in 2018 and later sold it. He did not allege that he purchased any of the other five tokens. His proposed classes included purchasers of tokens on the Bibox exchange and purchasers of BIX directly from the defendants or from third parties. The defendants moved to dismiss.

Standing for the Five Tokens Clifford Did Not Purchase

The court treated the challenge to standing as a motion to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). A plaintiff must show a concrete injury that is traceable to the defendant and likely to be remedied by a favorable decision. In a proposed class action, the named plaintiff must personally have been injured and must show that the defendant’s conduct implicates the same set of concerns as the conduct affecting the proposed class members.

The court held that Clifford lacked standing to pursue claims involving EOS, TRX, OMG, LEND, and ELF. He had not alleged that he suffered an injury from those tokens. The court also found that the claims required different proof because the tokens had different issuers, characteristics, advertising histories, and offering dates. Their shared ERC-20 standard, similar promotional statements, and listing on the same exchange were not enough to establish a common set of concerns with BIX.

The court further explained that deciding whether each token was a security under the Supreme Court’s Howey test would require a fact-specific, token-by-token inquiry. That individualized inquiry also prevented Clifford from representing purchasers of tokens he did not purchase. The court therefore granted the motion to dismiss those claims for lack of subject-matter jurisdiction.

Statute of Limitations for the BIX Claims

The remaining claims concerned BIX. The court considered whether those claims were barred by their applicable one-year statutes of limitations. Clifford’s final BIX purchase occurred on October 27, 2018, his final sale occurred on December 11, 2018, and he filed the action on April 3, 2020.

For claims under Securities Act § 12(a)(1), the court held that the limitations period ran from the alleged violation, not from Clifford’s later discovery of a possible legal theory. The court rejected his argument that the Securities and Exchange Commission’s April 3, 2019 Framework for analyzing digital assets started a new limitations period. The Framework was a nonbinding agency interpretation of the existing Howey test, and Clifford alleged that he learned of potential legal rights rather than newly discovered facts about his injury.

The court also rejected equitable tolling based on fraudulent concealment. That doctrine can extend a limitations period when a defendant concealed material facts, the concealment prevented discovery of the claim, and the plaintiff acted diligently. The court found that Clifford did not identify concealed material facts or explain how he failed to discover them despite diligence. Bibox’s alleged failure to state Clifford’s preferred legal conclusion that BIX was a security did not constitute concealment of a material fact.

The court reached the same result for Clifford’s Securities Act § 12(a)(2) and Exchange Act § 29(b) claims. Although those provisions include discovery-based limitations language, Clifford learned only of the SEC’s legal interpretation when the Framework was published, not of critical facts about his injury. The court held that the Framework did not extend the one-year limitations period.

Illinois Blue Sky Claims

Clifford also asserted Illinois Blue Sky claims seeking to rescind his BIX purchase. Illinois law required notice to each person from whom recovery was sought within six months after learning that the sale was voidable. Clifford gave notice on April 1, 2020. The court found that even treating the SEC Framework as the date he learned that the sale might be voidable, the notice came too late. The court also found that the complaint provided only conclusory allegations about when Clifford learned the sale was voidable and therefore did not adequately plead the notice requirement.

The parties’ submissions addressed only the Illinois Blue Sky claims, not the Blue Sky claims under the other states’ laws and the District of Columbia. Because the motion to dismiss was granted, the court did not address those additional state-law claims.

Disposition

Judge Denise Cote granted Bibox’s December 9, 2020 motion to dismiss. The court dismissed the claims concerning tokens other than BIX for lack of subject-matter jurisdiction and dismissed the BIX claims as barred by the statute of limitations. The Clerk of Court was directed to enter judgment for the defendants and close the case. The opinion did not decide on the merits whether each token was a security under the Howey test.