1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 DANIEL VALENTI, et al., Case No. 21-cv-06118-JD

8 Plaintiffs,

ORDER RE MOTION TO DISMISS

v. 9

10 DFINITY USA RESEARCH LLC, et al., Defendants. 11

12 In this securities action, defendants’ motion to dismiss, Dkt. No. 143, is granted, and 13 plaintiffs’ second amended complaint, Dkt. No. 139 (SAC), is dismissed with leave to amend. 14 I. SECURITIES ACT CLAIMS 15 Defendants seek the dismissal of plaintiffs’ claims under Sections 12(a)(1) and 15 of the 16 Securities Act as “time-barred under Section 13’s three-year statute of repose.” Dkt. No. 143 at 4. 17 Defendants say that the “three-year period begins when the security is first bona fide offered,” id. 18 (quoting P. Stolz Fam. P’ship L.P. v. Daum, 355 F.3d 92, 99-100 (2d Cir. 2004)), and that here, 19 plaintiffs themselves have alleged that “Dfinity first offered ICP to the public shortly after 20 February 2017,” outside of the three-year period. Dkt. No. 143 at 5. 21 Defendants highlight the SAC’s allegations that “[i]n February 2017, Williams announced 22 that the Foundation would fundraise for the blockchain’s development by collecting donations in 23 public ‘seed’ and ‘main’ rounds, in which Ethereum-based smart contracts would record 24 contributions (donations) to the Foundation.” SAC ¶ 29 (cleaned up); Dkt. No. 143 at 5. While 25 “[n]o actual tokens were sold through this fundraising,” Williams is alleged to have explained that, 26 “once the blockchain was ‘sufficiently mature,’ the Foundation would . . . recommend that donors 27 eventually receive ICP tokens in proportion to their donations.” SAC ¶ 29 (emphases omitted). 1 tokens [were] allocated to individual donors who participated in the Foundation’s February 2017 2 ‘seed’ fundraiser.” Id. ¶ 53. 3 Plaintiffs say they have alleged that “no ICP tokens were issued, sold, or otherwise made 4 available for trading more than three years before this action was filed, i.e., before August 8, 5 2018.” Dkt. No. 145 at 5 (citing SAC ¶¶ 29-32). That may be, but they offer no response to 6 defendants’ argument that even under plaintiffs’ own allegations in the SAC, ICP was genuinely 7 offered to the public in February 2017. See Zakinov v. Ripple Labs, Inc., No. 18-cv-06753-PJH, 8 2020 WL 922815, at *9 (N.D. Cal. Feb. 26, 2020) (“courts may find a first bona fide offer based 9 upon a defendant’s ‘clear objective attempts to secure purchasers’”) (quoting Stolz, 355 F.3d at 10 104 n.7). 11 On the current state of the pleadings and motion to dismiss briefing, dismissal of plaintiffs’ 12 Section 12(a)(1) and Section 15 claims as time-barred is consequently warranted. 13 II. EXCHANGE ACT CLAIMS 14 For the Exchange Act claims, plaintiffs’ Section 10(b) claim is dismissed as inadequately 15 pleaded. “To plead a claim under Section 10(b) and Rule 10b-5, [plaintiff] must allege: (1) a 16 material misrepresentation or omission; (2) scienter; (3) a connection between the 17 misrepresentation or omission and the purchase or sale of a security; (4) reliance; (5) economic 18 loss; and (6) loss causation.” Purple Mountain Trust v. Wells Fargo & Co., 432 F. Supp. 3d 1095, 19 1101 (N.D. Cal. 2020) (citations omitted). In this securities fraud action, the circumstances 20 constituting the alleged fraud must be stated with particularity under Federal Rule of Civil 21 Procedure 9(b). In addition, pursuant to the Private Securities Litigation Reform Act of 1995 22 (PSLRA), the complaint must “specify each statement alleged to have been misleading [and] the 23 reason or reasons why the statement is misleading.” 15 U.S.C. § 78u-4(b)(1). For each alleged 24 misstatement or omission, the complaint must also “state with particularity facts giving rise to a 25 strong inference that the defendant acted with the required state of mind.” Id. § 78u-4(b)(2)(A). 26 Defendants contest the adequacy of plaintiffs’ pleadings on the falsity, scienter, and loss 27 causation elements. See Dkt. No. 143 at 8. The Court agrees that the falsity and scienter 1 Among other issues, on falsity, defendants have rightly pointed out that “transfers” are not 2 necessarily sales. See id. at 9; Dkt. No. 146 at 6; and compare with SAC, Ex. A at 1-2 (“Reasons 3 || Why False & Misleading When Made” for Statements Nos. 1-4). In addition, plaintiffs’ complaint 4 |} allegations that were made “[a]ccording to a June 28, 2021 report by Arkham Intelligence,” SAC 5 || §§[ 58-59, and “[a]ccording to a group of Dfinity employees,” id. {] 60, are insufficient. Plaintiffs 6 || have pleaded no particularized facts establishing why these sources are reliable. 7 Plaintiffs’ scienter pleadings are also impermissibly conclusory, as they lead with the 8 assertion that “[a]s the founder and Chief Scientist of the Foundation and CEO of Dfinity USA, 9 || Williams necessarily had knowledge of Dfinity’s decisions regarding the issuance and sale of 10 || billions of dollars in ICP, as well as any lock-up or vesting restrictions applicable to ICP tokens.” 11 SAC, Ex. A at 1 (“Facts giving Rise to Strong Inference of Scienter” for Statement Nos. 1-7) 12 (citations omitted). For securities fraud scienter, “the ultimate question is whether the defendant 5 13 || knew his or her statements were false, or was consciously reckless as to their truth or falsity.” 14 || Gebhart v. SEC, 595 F.3d 1034, 1042 (9th Cir. 2010). Plaintiffs’ conclusory, “he must have 3 15 || known” allegations are insufficient to meet their burden under the PSLRA to “state with 16 || particularity facts giving rise to a strong inference that the defendant acted with the required state 3 17 || of mind.” 15 U.S.C. § 78u-4(b)(2)(A). 18 Because plaintiffs have not adequately pleaded a predicate violation of the securities laws, 19 || plaintiffs’ Section 20A claim and Section 20(a) control person claims are also dismissed. 20 For all claims dismissed in this order, plaintiffs will have a final opportunity to amend. 21 An amended complaint may be filed by April 8, 2025. A failure to meet that deadline without 22 || express approval will result in a dismissal of the case under Federal Rule of Civil Procedure 41(b). 23 IT IS SO ORDERED. 24 Dated: March 25, 2025 25 26 7 JAME NATO Unitedfftates District Judge 28