Williams v. KuCoin

Background

Chase Williams brought a proposed class action against KuCoin, Michael Gan, Johnny Lyu, and Eric Don. Williams alleged that KuCoin sold digital tokens that were unregistered securities and operated as an unregistered securities exchange and broker-dealer. He also alleged that the individual defendants were liable as control persons for KuCoin’s alleged violations. The complaint asserted five federal securities-law causes of action and 149 causes of action under the securities laws of 49 states, the District of Columbia, and Puerto Rico. The token issuers were not defendants in this action.

Williams purchased and sold TOMO-brand tokens through KuCoin in November 2018 and alleged an estimated total loss of $4,183.51. He moved under Federal Rule of Civil Procedure 23 to certify a class of people who purchased any of ten tokens through KuCoin between September 15, 2017, and July 2, 2021.

The defendants had not answered or otherwise moved in the case. The Clerk of Court had issued certificates of default against each defendant. Williams stated that, if class certification were granted, he anticipated seeking a judgment based on that default on behalf of the class.

Magistrate Judge’s Recommendation and Review

Magistrate Judge Robert W. Lehrburger recommended granting class certification in part, but limiting the class to purchasers of tokens Williams himself had purchased. No party objected to the recommendation. Judge Daniels therefore reviewed it for clear error, found none, and adopted it.

Class Standing

The court held that Williams had standing to represent purchasers of TOMO tokens but lacked class standing to represent purchasers of the other tokens. Class standing requires a plaintiff to allege a personal injury and show that the injury involves the same concerns as the alleged injuries of the proposed class members.

Williams had alleged a loss from purchasing and selling TOMO tokens, and the requested relief could address that loss. But the court reasoned that the securities claims required determining whether each token was a security under the framework derived from SEC v. W. J. Howey Co. Establishing liability for each token would require individualized proof. Because Williams had purchased only TOMO tokens, he had a personal stake in proving claims involving TOMO tokens, not all ten tokens. The court also found that Williams’s expert declaration did not establish that his injury involved the same concerns as the injuries of people who bought the other tokens.

Rule 23 Requirements

The court concluded that the narrowed TOMO Token Class satisfied Rule 23(a)’s requirements of numerosity, commonality, typicality, and adequacy of representation. The class contained 26 individuals, and the court found that proceeding in one action would serve judicial economy. It also found common questions, no apparent conflict between Williams and the other class members, and that Roche Freedman LLP and Selendy & Gay PLLC had extensive experience in complex financial class actions.

The court further found that the class satisfied Rule 23(b)(3). Common legal and factual questions predominated over individualized issues, and a class action was superior to individual lawsuits because many class members’ losses were too small to make individual actions practical, one forum would reduce the risk of inconsistent results, and no likely class-management difficulties were shown. The court found that class membership could be identified through KuCoin’s transaction records or publicly accessible blockchain information.

Disposition

Judge Daniels adopted Magistrate Judge Lehrburger’s Report and Recommendation. The court granted in part Williams’s motion to certify the class and appoint a class representative and class counsel, limiting the class to:

All persons who purchased on the KuCoin exchange any TOMO-brand tokens listed for sale on a domestic U.S. exchange, or who otherwise purchased on the KuCoin exchange TOMO-brand tokens in a domestic U.S. transaction, between September 15, 2017 and July 2, 2021.

The court appointed Chase Williams as class representative and Roche Freedman LLP and Selendy & Gay PLLC as class counsel. The Clerk of Court was directed to close the class-certification motion.