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Beranger v. Harris

United States District Court for the Northern District of Georgia, Atlanta Division

April 23, 2019, Decided; April 24, 2019, Filed

CIVIL ACTION NO. 1:18-CV-05054-CAP

Opinion

ORDER

This is a securities action alleging the unlawful sale of cryptocurrency via digital "tokens" for a company called FLiK. Generally, the plaintiffs [*2]  allege that the defendants are liable for selling the tokens because they constitute unregistered securities.

Before the court is the defendant Ryan Felton's motion to dismiss [Doc. No. 13],1 and Felton's consent motion for extension of time to file initial disclosures and the parties' joint discovery plan [Doc. No. 17]. Having reviewed the record, the court enters the following order.

I. Factual Allegations2

The defendants were the controlling shareholdings of FLiK, a company initiated to create an online distribution platform for entertainment projects. To raise money to launch the company and its online platform, the defendants conducted an initial coin offering ("ICO") from August 20, 2017 to September 20, 2017. In an ICO, a company offers purchasers a unique digital asset, often called a "coin" or "token," in exchange for consideration. FLiK's ICO involved the sale of a limited number of FLiK tokens, which were then available for sale on the secondary market.

On August 12, 2017, before initiating the ICO, FLiK published a "whitepaper" describing the company and the tokens that would be for sale during the ICO. FLiK tokens holders would be able to use the tokens for content on the company's [*3]  website, and token holders would have access to other activities like in-person FLiK events. However, the defendants also touted the tokens' investment potential. The tokens were valued at $0.06 per token at the beginning of the ICO. From August to October 2017, FLiK made several announcements promoting the tokens, including social media posts describing high-value purchases, celebrity endorsements and investments, and upcoming projects that the company would take on. The plaintiffs allege that Felton generally posted the company's announcements, and other alleged promotions about FLiK were published via Felton's or the defendant Harris's individual social media accounts. By October 17, 2017, the market value of the tokens had increased from $0.06 to $0.30 per token. The next day, Felton advertised that the tokens would be redeemable for $14.99 per token in fifteen months. However, sometime in 2017, the tokens began to rapidly decrease in value, and FLiK's social media campaign disappeared. By February 15, 2018, the tokens' value dropped to about $0.18 per token.

In April 2018, FLiK announced that it had missed its launch date for its internet platform, and no further announcements [*4]  about its progress were made. Ultimately, FLiK never launched, and the company no longer exists. As of August 3, 2018, the FLiK tokens' value was about $0.008 per token. Between that and the failure of FLiK and its online platform, the tokens are now essentially worthless. The plaintiffs suffered a total loss on their investments, which collectively total about $2 million.

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2019 U.S. Dist. LEXIS 195107 *; 2019 WL 5485128

AURELIEN BERANGER, et al., Plaintiffs, v. CLIFFORD "T.I." JOSEPH HARRIS, JR., and RYAN FELTON, Defendants.

CORE TERMS

tokens, motion to dismiss, plaintiffs', amended complaint, purchases, Securities Act, platform, unregistered, discovery, promoting, solicited, Georgia's Uniform Securities Act, launched