A class action lawsuit is being filed against the founders of the altcoin Bancor Protocol. Plaintiffs accuse the exchange of misleading investors and causing significant financial losses. Here are the details…
Lawsuit against Bancor behind altcoin BNT
A class action lawsuit has been filed against the founders of Bancor Protocol, an automated crypto-asset exchange. Plaintiffs allege that they misled investors and caused significant financial losses. A group of plaintiffs brought a class action lawsuit against the BProtocol Foundation and the Bancor DAO, as well as the Bancor Protocol founders, among others in a similar situation.
The plaintiffs claimed that the defendants deceived them with promises of risk-free investments. They allegedly did this to make up for undisclosed vulnerabilities in online crypto-asset exchanges. According to the lawsuit, these promises are not only false. At the same time, those who made these knew very well that they were fake.
The Bancor Protocol founders, who founded the BProtocol Foundation in 2017, introduced an automated method for trading crypto assets. The protocol acts as an “automated market maker” (AMM) and pools investors’ crypto assets to form a functional exchange. In return, investors are given a share of the fees collected from traders on the platform.
Misleading sales and financial loss claim
While Bancor Protocol is allegedly managed by a decentralized autonomous organization (DAO) called Bancor DAO, the case alleges that the defendants have substantial control over the platform’s operations. This not only encompassed capital, employees, and code, but also included manipulation and dominance of the Bancor DAO, giving the defendants almost complete control.
BancorProtocol has sought broad liquidity in various crypto assets to attract liquidity providers (LPs) and remain competitive. Defendants introduced different versions of Bancor and highlighted “temporary loss protection” as an attractive feature for Version 2.1 LPs. This protection was intended to protect LPs against losses incurred when investing assets in the stock market. As a result, Bancor Protocol has managed to attract over $2.3 billion in crypto assets. Thanks to the “temporary loss protection” feature, investors believed their funds were safe.
However, the lawsuit claims that the implementation of version 2.1 exacerbates the weaknesses in the protocol. Defendants are alleged to have been aware of these shortcomings and the associated risks, but concealed them from LPs and sought to circumvent the issue through increased liquidity and undisclosed analysis. However, these efforts failed to meet the non-permanent loss protection guarantee, which allegedly resulted in serious financial losses for LPs.
Bancor DAO is not that decentralized, is it?
cryptocoin.com As we reported, in May 2022 the Bancor Protocol launched version 3 with an advanced investment program known as the LP Program. By marketing the program to LPs, the defendants offered “100% protection” against temporary losses and demanded consistent payment coverage for previous versions. However, just 19 days after the program was launched, large withdrawal requests triggered the defendants’ alleged failed payment obligations. According to the complaint, this has caused significant financial damage to investors.
Plaintiffs argue that the LP Program constitutes a binding investment contract and a security under US law. They argue that defendants may have complied with the relevant registration and disclosure requirements. Thus, they and other class members would have avoided losses amounting to about 50% of their investments. As a result, the plaintiffs sought compensation, restitution, and other forms of redress.
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