SEC v. Binance Court Filing, retrieved on June 5, 2023 is part of . You can jump to any part in this filing . This is part 47 of 69. HackerNoon’s Legal PDF Series here FACTS VIII. THE CRYPTO ASSETS TRADED ON THE BINANCE.COM PLATFORM AND BINANCE.US PLATFORM INCLUDE ASSETS THAT WERE OFFERED AND SOLD AS SECURITIES. D. FIL 399. “FIL” is the native crypto asset of the Filecoin network. The Filecoin network is an open-source data storage network that runs on a blockchain, created by Protocol Labs, Inc. (“Protocol Labs”), which describes itself as a research, development, and deployment lab for network protocols. 400. In or around July 2014, Protocol Labs and its founder and CEO, Juan Batiz-Benet (“Benet”), published whitepaper entitled “Filecoin: A Cryptocurrency Operated File Storage Network,” which Protocol Labs updated approximately three years later, setting forth “path toward the construction of the Filecoin network.” 401. In 2017, Protocol Labs conducted a two-part token sale: first, an “Advisor Sale” for advisors of Protocol Labs and Filecoin; and, second, a “Public Sale” for the broader community, but supposedly limited to “accredited investors” (collectively, “2017 FIL Sales”). Investors could use U.S. dollars and certain crypto assets to buy Filecoin. 402. Protocol Labs ran the Advisor Sale from July 21 to July 24, 2017, and sold FIL to approximately 150 investors, which included individuals, institutional investors, trusts, and established syndicate investors. These investors paid $.075 per FIL and were offered “vesting/discount choices of 1-3 years and 0-30% discount.” 403. In the August 2017 Public Sale, the FIL price was set based on a “public sale price function,” described as “price = max ($1, amountRaised / $40,000,000) USD/FIL” and increased thereafter based on the amount sold. For the Public Sale, like the Advisor Sale, investors received discounted pricing for agreeing to longer vesting periods. 404. In connection with the 2017 FIL Sales, which were effected pursuant to SAFTs, Protocol Labs filed forms with the SEC claiming an exemption from registration for the offerings of FIL pursuant to SAFTs. 405. Protocol Labs reported that they raised more than $205 million for the development of Filecoin in the 2017 FIL Sales, which value increased in the days following the close of the sale based on the fluctuation in value of certain invested crypto assets. 406. Protocol Labs pooled investment proceeds from the token sales to fund the development and growth of the Filecoin network. 407. On October 15, 2020, Protocol Labs launched the mainnet (a publicly accessible version of the network) of the Filecoin network, and FIL began being minted and distributed. There was a stated maximum circulating supply of 2,000,000,000 FIL, meaning that no more than 2 billion FIL will ever be created, with issuance aligning with network growth. 408. FIL has been available for buying, selling, and trading on the Binance.com Platform since October 2020, and the Binance.US Platform since June 2021. 409. Since the October 2020 launch, Protocol Labs has continued to use funds from the sale of FIL to develop, expand, and promote the Filecoin network. 410. The information Protocol Labs publicly disseminated, including after the initial FIL sales, has led FIL holders, including those who have purchased FIL since October 2020, reasonably to view FIL as an investment in and to expect to profit from Protocol Lab’s efforts to grow its protocol, which, in turn, would increase the demand for and value of FIL. 411. The Protocol Labs Filecoin Team posted about the sale: “The Filecoin Sale was a critical milestone in the lifetime of the project. It raised the funding necessary to grow our team, to create the network, and build all the software tools needed to operate and use the network.” They further stated, “Filecoin success will reward the investment of supporters like you by simultaneously driving down the cost of storage and increasing the value of the Filecoin tokens that incentivize miners to provide storage. We’re thrilled by your widespread, enthusiastic interest and look forward to staying engaged and including you in our success.” 412. In addition, Benet and the Filecoin team released a document titled, “Filecoin Token Sale Economics,” that provided information about the 2017 FIL Sales and the Filecoin network, stating: Protocol Labs requires significant funding to develop, launch, and grow the Filecoin network. We must develop all the software required: the mining software, the client software, user interfaces and apps, network infrastructure and monitoring, software that thirdparty wallets and exchanges need to support Filecoin, integrations with other data storage software, tooling for web application and dapps to use Filecoin, and much more. We must deploy the network, facilitate its growth to large scale, market to and onboard miners and clients, bring key partners into the eco system, and much more. 413. That document also stated that FIL was to be distributed to groups “critical to the network’s creation, development, growth, and maintenance” with an allocation, described as follows, that tied Protocol Labs’ profits to those of FIL holders: a. 70% to Filecoin Miners – “For providing data storage service, maintaining the blockchain, distributing data, running contracts, and more.” b. 15% to Protocol Labs – “For research, engineering, deployment, business development, marketing, distribution, and more.” c. 10% to investors – “For funding network development, business development, partnerships, support, and more.” d. 5% to Filecoin Foundation – “For long-term network governance, partner support, academic grants, public works, community building, etc.” 414. The “Filecoin Token Sale Economics” document further explained: “We have structured the token sale to reward a large group of people that can help us build the [Filecoin] network, by selling Filecoin at what we think is a much lower price than it will be worth some day (caveat: as with any risky investment of course we cannot make guarantees or predictions).” As described in a July 2017 blog post, the Advisor Sale in particular was intended, in part, to secure “long-term commitment to and alignment with the Filecoin network” and “to reward their contributions so far and/or future potential with the capability to invest early.” 415. The “Filecoin Token Sale Economics” and another document made available to investors ahead of the 2017 FIL Sales, the Filecoin Primer, stated that Filecoin purchasers would be able to sell the token on crypto asset trading platforms in the future. 416. The Filecoin Primer also touted “Large Scale Value Creation,” explaining, Filecoin Network “will create value in a number of ways, and the total impact of the network can be tremendous. Growth of the network will drive demand for the token. The more value created by the Filecoin Network, the more things people and organizations spend Filecoin on, and the greater the value and worth of the token.” 417. Similarly, a Confidential Private Placement Offering Memorandum (“PPM”) in connection with the 2017 FIL Sales stated: “A significant portion of the proceeds of the Offering will be used by the Company to achieve the Minimum Viable Product and subsequently to buildout a decentralized storage network, powered by a blockchain and the Filecoin protocol token.” 418. Moreover, both before and after the 2017 FIL Sales, Protocols Labs consistently touted its expertise and ability, and led the work to develop the Filecoin network for launch. In an August 2, 2017 Q&A Benet stated: “Over the last few years, Protocol Labs has proved to the world that we know how to deploy capital to create valuable projects, valuable technology, and valuable software. . . . We know how to deploy capital effectively. We have great plans for the Filecoin network and its surrounding ecosystem, at many levels of funding. We plan to deploy 100s of millions of dollars over the next few years to make Filecoin the world’s best storage network, not just the best decentralized storage network.” 419. Benet also addressed the funding needs, pricing, and economics of FIL in that August 2017 Q&A, stating: “Since we think and are working for Filecoin to be worth a lot more in the future, then we naturally want to sell it at the highest price the market will bear. Subject to reason, if we can sell it higher, then we should.” 420. Benet also explained publicly that Filecoin needed funding in order to be able to compete: “Our (collective) competition is the massive, centralized cloud storage companies. We are talking about the tech titans – AWS, Google Cloud, and Microsoft Azure – the three biggest companies in the world have cloud businesses with BILLIONS of dollars in revenues, not just funding. In order to put up this fight, we will need significant resources. Yes, resources in the hundreds of millions will empower us to develop Filecoin as fast as we can, as well as the dozens of other tools and services required to make Filecoin a service and ecosystem remotely close to competitive with the centralized counterparts.” 421. The economic structure of FIL distribution and public statements about that structure further invited investors to view FIL as an investment in Protocol Labs’ and the Filecoin Foundation’s efforts and to conclude that FIL investors’ interests were aligned with those of FIL’s developers. Specifically, the tokens allocated to Protocol Labs and Filecoin Foundation were to vest over a six-year period beginning after the network launch. As stated in the “Filecoin Token Sale Economics” document, Protocol Labs and the Filecoin Foundation “aim[ed] to make Filecoin massively valuable in the long-term, and we want to attract investors similarly interested in long-term value creation and growth” and “[v]esting creates long-term alignment” because “Protocol Labs and the Filecoin Foundation are deeply committed for the long-term, and 6-year vesting boldly proves that to all other network participants.” 422. Filecoin has also implemented a process to burn FIL tokens, thereby reducing the FIL supply. As with the “burn” mechanisms of other crypto asset securities set forth herein, this marketed burning of FIL as part of the Filecoin’s economic features has led investors reasonably to view their purchase of FIL as having the potential for profit. 423. Following the release of the protocol in October 2020, Protocol Labs continued to be heavily involved in the development and promotion of the Filecoin network and its pursuit of success. 424. In late 2021, Raul Kripalani, a Protocol Labs Researcher, introduced the “Filecoin Virtual Machine” (“FVM”), described as a “core pillar in the next evolution of the decentralized storage ecosystem.” On November 6, 2022, Kripalani tweeted, “These were amazing weeks for the #FVM + team. Momentum and expectation are through the roof. 100s of teams building on the Wallaby testnet. Many promising @Filecoin apps to launch on mainnet the minute FEVM kicks in. Pumped to be building the future of $FIL with these rockstars!” The Protocol Labs Twitter account has posted updates regarding FVM, including through April 2023. 425. The Protocol Labs team has continued to release “roadmaps” or “master plans,” available online and through recorded video presentations, that showcase future development plans for the Filecoin network. For example, in September 2022, Benet delivered the keynote address at FIL-Singapore, which “gathered builders from around the world to build, share experiences, and hear from other community members on what’s next for the network.” In his address, Benet presented “The Filecoin Masterplan” which included building the world’s largest decentralized storage network. 426. In a February 3, 2023 Protocol Labs Blog post addressing the impact of the “crypto winter” economic downturn, Benet touted the Filecoin team’s supposed successes to date in growing the Filecoin ecosystem, “[w]e’ve achieved a tremendous amount in the past several years - from Filecoin launch; to scaling IPFS to millions of users; building one of the fastest growing developer ecosystems; supporting 300+ companies across the network; growing movements like SBS and FTC; launching testnets for FVM, Saturn, SpaceNet, and Bacalhau just last quarter; and much more.” Continue Reading . Here About HackerNoon Legal PDF Series: We bring you the most important technical and insightful public domain court case filings. This court case 1:23-cv-01599 retrieved on September 6, 2023, from is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction. docdroid.net

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