The internal power struggle Tezos is currently facing has upset a lot of investors as of late. Already, Tezos founders Kathleen and Arthur Breitman  were sued for securities fraud in California.  Is the potential class-action lawsuit a hopeless undertaking? Not quite, according to a US lawyer specialized in digital currencies.

Nevertheless, this doesn’t mean the lawsuit will be a piece of cake by any means. Because Tezos Foundation the company behind the ICO,  is based in Zug, Switzerland, the California case may very well be dismissed.

Without a doubt, the Breitmans had solid legal counseling when they decided to create a company in Zug.

“Firms establish foundations in Zug, Switzerland for a few reasons. First, a Swiss foundation may allow the issuer of a token to avoid paying taxes on its fundraising income. Offering through a Swiss foundation may also allow a company to avoid anti-money laundering obligations,” Berger Singerman lawyer Drew Hinkes explained in a finews.com article.

Another reason for choosing Zug is the potential to avoid class action lawsuits like the one filed in California just several days ago. To sue Tezos,  one would need to get to Switzerland and hire a Swiss lawyer to try to make their case.  In other words, one would need money to make it happen.

Simply saying, ‘I’m in Switzerland and I’ll use a foundation model to get favorable tax benefits’ does not necessarily fully inoculate an issuer from liability.

This is probably how Tezos will defend itself in the upcoming suit. They would argue the suit  ‘should be heard in Switzerland.’  And the terms and conditions are in the Breitman’s favor. If the California court decides to dismiss the class action, “that would effectively mean that investors waive their right to sue Tezos for restitution through a mass proceeding, and cannot sue Tezos anywhere but in Zug.”

So, the lawsuit is pretty much hopeless, right? Not quite!

“The U.S. government and specifically the SEC (US financial regulator Securities and Exchange Commission) can act beyond the U.S. boundaries. Simply saying, ‘I’m in Switzerland and I’ll use a foundation model to get favorable tax benefits’ does not necessarily fully inoculate an issuer from liability,” Hinkes argued.

Back in July, SEC concluded that “tokens offered and sold by a ‘virtual’ organization known as ‘The DAO’ were securities and therefore subject to the federal securities laws.” Which means there may be a precedent. Worth mentioning is that The DAO was stateless, and not tied to any particular nation-state. Yet, that fact didn’t protect the organization from the US financial regulator.

So, how would Hinkes treat the case?

“I would look at it from a fundamental basis: are you a U.S. person, functionally controlling something outside the country, and is the foreign entity simply a ruse to avoid U.S. law? Are you a non-U.S. person whose venture targets U.S. consumers? The SEC has broad powers and can, when necessary to protect U.S. persons, act outside of the territorial boundaries of the U.S. to enforce its laws.”

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