ICOs and how to recover investments

2016-2018 was the golden age of investments in ICOs, the famous campaigns for selling tokens intended to raise investments to finance blockchain-based entrepreneurial projects. 

There are still many who remember them. And they are not pleasant memories. Those projects claimed many victims, mostly small investors attracted by the prospect of major capital gains. 

Having fallen dramatically during the bear market period, the price of these tokens continues to stagnate in this new bullish period, reflecting the drastic downsizing or definitive death of the underlying projects. And not always for reasons beyond the control of the issuers. 

Giovanni Indirli and Prof. Avv. Massimo Campailla (Zunarelli law firm), who have always defended the interests of consumers, have taken legal action to ensure the restitution of the sums invested and now agree to answer our questions.

ICOs and investments, interview with lawyers Giovanni Indirli and Massimo Campailla

Can you give us an overview of the ongoing legal initiatives?

We would like to inform the readers that we will speak extensively about this topic during our intervention at the webinar organized by the office of the European Parliament in Italy “Crypto-assets in recent developments and the Digital Finance Package”, which will be held on the YouTube platform on March 26th and will be accessible to everyone (for the announcement and more details please visit the website of the office – after the live the video will remain available on YouTube).

As for us, let’s start by saying that our US colleagues were the first to take action. Examples include the actions of Baker & Hostetler LLP in New York State in connection with 11 ICOs involving offerings of real securities under federal law, or the class action against Helbitz.  As far as we are concerned, we can anticipate that we are currently only involved in representing Italian investors in Italy. However, this is only the first step. Thanks to our international network, we expect to start legal actions soon in other jurisdictions as well, including Switzerland, where most of the issuers are based.

Is it always possible to recover funds? And under what conditions?

Here in Italy, but not only there, the legislation protecting savings and the weaker party is particularly favourable and a recovery action, as well as being able to be rooted in the investor’s forum, often has very encouraging prospects of success. 

Many of the tokens offered as “utility tokens” are in fact securities under the laws of the investor’s country, and the relevant contracts are therefore invalid, with the purchaser having the right to recover what was wrongfully paid. But even in these cases, strict project selection must be made. A favourable judgment is of little value if it cannot be enforced in the issuer’s country of establishment or if the issuer proves to be incapable of doing so. It is therefore necessary to weigh up all the various factors, often operating in combination, which may affect the actual prospects of recovery.

We can mention some of them such as the nature of the issuer (e.g. the prospects are generally better if the issuer is a company rather than a natural person), its domicile/head office (e.g. it is better to overlook issuers who are natural persons domiciled in tax havens), the amount of capital raised and the presumed capacity of the issuer (with tens of millions of euros raised, a company established in an advanced country that has drastically downsized its project is certainly more capacious than an issuer that has raised a few million euros and has spent without savings on a very ambitious project), number and geographic distribution of buyers (as already indicated, at the moment we are focusing on projects that, based on the information we have gathered, we know have had an important following in Italy).

Needless to say, at the moment our focus is on projects of issuers established in Switzerland, where the Lugano 2 Convention allows savers to sue issuers before Italian courts and offers relatively simpler and faster procedures to obtain enforcement of judgments made in our country.

It generally depends on the size of the investment, but most are not willing to bear the costs of a lawsuit. Launching a class action therefore requires flexibility, allowing even small investors to participate at a cost they can afford, without any advance payment.

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