Williams et al v. Block.One et al

Filing 57

MEMORANDUM AND ORDER denying 20 MOTION for Appointment as Lead Plaintiff and Approval of Selection of Co-Lead Counsel; granting 22 MOTION to Appoint Counsel; granting 22 MOTION to Consolidate Cases 1:20-cv-3829; granting 22 MOTION to Appoint Crypto Assets Opportunity Fund LLC and Johnny Hong to serve as lead plaintiff(s). For all these reasons, Crypto assets' motion [Dkt. 22] is granted and the Williams Group's motion [Dkt. 20] is denied. Accordingly, these cases are consolidated. Crypto Assets Opportunity Fund, LLC is appointed Lead plaintiff. The firm of Grant & Eisenhofer P.A. is appointed Lead Counsel. Unless otherwise ordered, this order shall apply to any securities fraud against Block. One that subsequently may be 1led in or transferred to this Court. (And as further set forth herein). SO ORDERED. (Signed by Judge Lewis A. Kaplan on 8/4/2020) (jca)

Case 1:20-cv-02809-LAK Document 57 Filed 08/04/20 Page 1 of 6

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------x
CHASE WILLIAMS and WILLIAM ZHANG, individually
and on behalf of all others similarly situated,
Plaintiffs,

-against-

20-cv-2809 (LAK)

BLOCK.ONE, BRENDAN BLUMER, and DANIEL
LARIMER,
Defendants.
------------------------------------------x
CRYPTO ASSETS OPPORTUNITY FUND LLC and
JOHNNY HONG, individually and on behalf of all others
similarly situated,
Plaintiffs,

-against-

20-cv-3829 (LAK)

BLOCK.ONE, BRENDAN BLUMER, DANIEL
LARIMER, IAN GRIGG, and BROCK PIERCE,
Defendants.
------------------------------------------x

MEMORANDUM AND ORDER

LEWIS A. KAPLAN, District Judge.
These two lawsuits are putative securities class actions in which the plaintiffs claim
to have suffered losses arising from their trading of EOS tokens, a type of cryptocurrency. The
Court grants the motion of plaintiff-movant Crypto Assets Opportunity Fund LLC (“Crypto Assets”)
to consolidate these actions, appoint it as lead plaintiff, and approve its selection of lead counsel
[Dkt. 22]. It denies the parallel motion of plaintiffs-movants JD Anderson, David Muhammad,
Rajith Thiagarajan, Chase Williams, and Token Fund I LLC [Dkt. 20] (collectively, the “Williams

Case 1:20-cv-02809-LAK Document 57 Filed 08/04/20 Page 2 of 6

2
Group”).
Where, as here, multiple plaintiffs file substantially similar securities class actions
and seek appointment as lead plaintiff under the Private Securities Litigation Reform Act of 1995
(“PSLRA”), the PSLRA requires that the district court appoint “the most adequate plaintiff” to that
role.1 The statute creates a rebuttable presumption that the most adequate plaintiff is the one who
(1) has moved for appointment, (2) “in the determination of the court, has the largest financial
interest in the relief sought by the class,” and (3) “otherwise satisfies the requirements of Rule 23
of the Federal Rules of Civil Procedure.”2 For the second requirement, courts generally consider
four factors: the number of shares purchased, the number of net shares purchased, the total net funds
expended by the plaintiff, and, most importantly, the approximate size of the plaintiff’s loss.3
According to the Williams Group’s papers, Token Fund I lost $537,306.98,
Thiagarajan lost $64,793.46, Williams lost $8,100.93, Anderson lost $3,630.69, and Muhammad lost
$1,615.33.4 But, as these plaintiffs concede, they have failed to submit all of the trading data
evidencing the two and perhaps three largest claimed losses. In its unsworn (and therefore
defective5) PSLRA certification, Token Fund I asserts that at least $300,000 of its claimed loss is
based on its own estimate because the cryptocurrency exchange where it made those trades, a Hong
Kong entity called Bitfinex, “refused to provide access to the relevant trading activity.”6
Thiagarajan’s certification (also unsworn) makes no mention of Bitfinex or any failure to document
all of the plaintiff’s trades, but his data evidently is either incomplete or inaccurate because it
suggests that he sold nearly 3,000 more tokens than he purchased despite the fact that the class
period begins on the date of the initial public offering for such tokens.7 Williams’s data appears to

1

15 U.S.C. § 78u-4(a)(3)(B)(ii).
2

Id. § 78u-4(a)(3)(B)(iii).
3

See, e.g., 7 WILLIAM B. RUBENSTEIN, NEWBERG ON CLASS ACTIONS § 22:42 (5th ed. 2020)
(hereinafter “RUBENSTEIN”) (citing cases).
4

Dkt. 21 at 9.
5

See text accompanying notes 11-12, infra.
6

Dkt. 25-1 at 22; see also Dkt. 43 at 4.
7

Dkt. 25-1 at 16 (original certification); Dkt. 44-3 at 2 (supplemental certification); see also
Dkt. 43 at 4-5 (conceding for the first time in an opposition brief that “Thiagarajan does not
have access to all his EOS purchases”).

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contain errors, as well, albeit far less consequential ones.8 Although the Williams Group contends
that these plaintiffs’ missing transaction data would increase the sizes of their losses, it has not
explained how the Court could verify this assertion based on the materials it has presented. These
parties have not provided a satisfactory reason for failing to substantiate their alleged losses, and the
Court is unwilling to engage in guesswork or rely on their unsupported claims, at least two of which
are demonstrably inaccurate or incomplete.
Crypto Assets, by contrast, provided a full accounting of its claimed transactions.
In its final estimate, after initially using a higher number calculated under an accounting method
challenged by the Williams Group, it asserts that it lost $36,229.13.9 Accordingly, Crypto Assets
has suffered the largest loss that the Court is able to verify of any proposed lead plaintiff. It has the
largest financial interest of any lead plaintiff applicant in the outcome of this lawsuit.
The Court finds additionally that Crypto Assets, at this preliminary stage and for the
purposes of the PSLRA, has made a prima facie showing that it will be able to satisfy the
requirements of Rule 23. The Rule 23 provisions that generally are relevant during PSLRA
appointment disputes concern the typicality of the class representatives and the adequacy of the
representatives and their counsel to represent the interests of the absent class members.10 The Court
has no reason to believe at this time that Crypto Assets is atypical of the class or otherwise would
make an inadequate representative. It allegedly suffered a substantial loss and thus far has complied
with the procedural requirements of litigating under the PSLRA. In addition, the Court finds that
Crypto Assets’s counsel is up to the task of managing this lawsuit. Its proposed lead counsel include
a law firm with a long track record of representing plaintiffs in securities class actions and a
complex litigation clinic at a leading law school led by an experienced practitioner.
Even if the Court were willing to rely on the unsupported assertions of Token Fund
I and Thiagarajan that they suffered larger losses than Crypto Assets, it would deny the Williams
Group’s application. It would do so because the Williams Group has not satisfied its prima facie

8

The Williams Group asserts in its original memorandum that Williams bought and sold
8,222.87 tokens during the class period for a net purchase of 0 tokens. Dkt. 21 at 8. But
Williams’s trading data states that he bought 8,222.87 tokens and sold 8,223.26. See Dkt.
25-1 at 20. While this is a minor discrepancy, the Williams Group does not address it in its
subsequent filings, despite its adversary flagging the problem. It does, however, adjust its
calculation of Williams’s asserted net purchase to -0.39. See Dkt. 51 at 4. Because the class
period begins on the date of the initial public offering for the tokens, the Court is unable to
understand Williams’s claim that he sold more tokens than he purchased.
9

Dkt. 49 at 9.
10

See, e.g., In re Cendant Corp. Litig., 264 F.3d 201, 265 (3d Cir. 2001); Hansen v.
Ferrellgas Partners, L.P., No. 16-cv-7840 (RJS), 2017 WL 281742, at *3 (S.D.N.Y. Jan.
19, 2017) (Sullivan, J.).

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burden of demonstrating under Rules 23(a)(4) and (g) that the proposed lead plaintiff group and its
chosen counsel would be able adequately to represent the putative class.
To begin, there are several defects, some of which already have been flagged, in the
Williams Group’s application that raise significant doubts about its competency to lead this lawsuit.
All five of the Williams Group plaintiffs failed to submit with their motion the required sworn
PSLRA certifications that, among other things, must “set[] forth all of the transactions of the
plaintiff in the security that is the subject of the complaint during the class period.”11 The
certifications that they submitted were unsworn, and at least as to Token Fund I, Thiagarajan, and
Williams, the trading data either contains errors or does not set forth all of the relevant
transactions.12 While Token Fund I blames this latter problem on Bitfinex, the Williams Group’s
papers do not make clear why it and the other plaintiffs apparently failed to keep records of their
own trades.13 Regardless of whether these oversights are fatal to the Williams Group’s application
standing alone, they indicate a lack of diligence on behalf of these plaintiffs and their counsel.
Further, the Williams Group and its counsel have failed to provide satisfactory
answers to numerous questions surrounding their proposal to proceed with five lead plaintiffs who
apparently do not have a pre-existing relationship. When a group applies for the lead plaintiff role,
considerations relevant to the adequacy inquiry for PSLRA purposes “include whether the group’s
members have a pre-existing relationship, whether they have cooperated effectively thus far, and
whether they have a coherent plan for dividing responsibilities, resolving conflicts, and managing
the litigation.”14 “[C]ourts have typically required that plaintiffs lacking [a pre-existing] relationship
11

15 U.S.C. § 78u-4(a)(2)(A) (emphasis added). The plaintiffs concede that they failed to
satisfy this requirement of the PSLRA. See Dkt. 41 at 2 n.1.
12

After Crypto Assets flagged this problem, the Williams Group plaintiffs submitted
supplemental certifications under penalty of perjury with their memorandum in opposition
to the Crypto Assets motion. Dkt. 44. They did not, however, correct for the failure to
include all of their trading data.
13

As noted previously, Token Fund I asserts that Bitfinex “refused to provide access to
individual trade data.” Dkt. 43 at 4. It explains that, “[u]nfortunately, this lack of access
is common among individuals who trade on crypto-asset exchanges.” Id. In the portion of
its memorandum discussing its proposed lead counsel’s litigation experience, the Williams
Group notes that in a separate lawsuit, both of its law firms currently represent different
plaintiffs who are suing Bitfinex for market manipulation. See Dkt. 21 at 14-15. Except
in this oblique and apparently unintended manner, counsel failed to bring this fact to the
Court’s attention. They have not addressed whether their being adverse to an entity that
holds and refuses to produce information necessary to their clients’ claims may create
further difficulties in this litigation.
14

In re Petrobras Sec. Litig., 104 F. Supp. 3d 618, 622 (S.D.N.Y. 2015).

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5
present a more compelling showing as to their fitness for the position.”15 This is because there is
a substantial risk that large or disparate lead plaintiff groups “can become unwieldy, creating
coordination and decision-making problems.”16 In addition, applications from unrelated plaintiff
groups raise doubts “that the group – rather than its lawyers – is truly in charge of the litigation, as
the PSLRA hopes.”17
The Williams Group has not explained adequately why these five apparently
unrelated plaintiffs opted to proceed as a group. Nor has it resolved the Court’s concern this
decision was, and future decisions by the group would be, driven by the lawyers. The Williams
Group’s papers provide almost no meaningful information about the plaintiffs or their plans for
managing this case. And with respect to Token Fund I, the little information submitted to the Court
raises serious questions about whether the entity was formed for the purpose of filing this lawsuit
and perhaps this very appointment motion. In its opposition to the Crypto Assets motion (though
not in its PSLRA certification), Token Fund I discloses for the first time that it was formed on June
6, 2020 – two months after this lawsuit was filed by other members of the Williams Group, two days
before it moved to become lead plaintiff, and long after the alleged trades giving rise to its claims
were made. Only in its reply in support of its appointment motion does Token Fund I disclose the
name of its “sole member” who allegedly made these trades.18
The Williams Group has failed also to explain why the putative class would benefit
from having five lead plaintiffs authorized to make decisions on its behalf. While large leadership
groups occasionally may offer advantages, the application here creates an unnecessary risk of having
too many cooks in the kitchen – or, perhaps worse, a risk of having disinterested cooks. If Token
15

See Elstein v. Net1 UEPS Techs., Inc., No. 13-cv-9100 (ER), 2014 WL 3687277, at *4
(S.D.N.Y. July 23, 2014).
16

RUBENSTEIN § 22:35 & n.6 (citing cases); see also, e.g., In re Petrobras, 104 F. Supp. 3d
at 621 (expressing such concerns).
17

RUBENSTEIN § 22:35 & n.5 (citing cases); see also, e.g., Khunt v. Alibaba Group Holding
Ltd., 102 F. Supp. 3d 523, 534 (S.D.N.Y. 2015) (expressing similar concerns). These
problems are somewhat mitigated, though not entirely so, because the Williams Group has
disclaimed any argument that the losses of the proposed plaintiffs should be aggregated for
the purpose of assessing its petition.
18

See Dkt. 43 at 3. Token Fund I’s PSLRA certification, which was signed by an “authorized
agent” of the entity whose role is unclear, states that the fund consists of an unnamed “sole
controlling member” who assigned his holdings and claims to Token Fund I on June 5, 2020
– confusingly, the day before Token Fund I was formed. Dkt. 44-5 at 2. The reply
memorandum identifies the controlling member as “Benjamin Clarke.” Dkt. 51 at 7.
Although a declaration submitted alongside Token Fund I’s reply includes its purported
certificate of formation, this document does not mention Mr. Clarke. See Dkt. 52-1 at 2-3.

Case 1:20-cv-02809-LAK Document 57 Filed 08/04/20 Page 6 of 6

6
Fund I and Thiagarajan are to be believed ab
would be apparent. But the Court questions
of Anderson, Muhammad, and Williams.
losses, their motivation to spend potentially
counsel for the Williams Group ask the Co
Fund I or Thiagarajan as an alternative to the
minute willingness to jettison some of their
being driven by the lawyers, rather than the

ut their estimated losses, their interest in this laws it
w the putative class would benefit from the inclusibn
1
ecause they allege to have suffered relatively s~ll
ars managing this litigation is doubtful. 19 And w le
in their reply memorandum to appoint either Tok n
ve plaintiff group proposed in their motion, their la tlients raises further concerns that the application is
laintiffs. 20

Finally, and as noted above, q estions of this nature arise regularly when groups f
apparently unrelated parties apply for the lea plaintiff position. The failure of the Williams Grotlp
and its counsel to provide satisfactory answ rs thus raises further doubts about their diligence
litigating this matter and their adequacy to re resent the absent class members.
For all these reasons, Crypto
Group's motion [Dkt. 20] is denied. Accor
Opportunity Fund, LLC is appointed Lead
appointed Lead Counsel. Unless otherwise
against Block.One that subsequently may be

ssets' motion [Dkt. 22] is granted and the Willim11-s
ingly, these cases are consolidated. Crypto Assets
laintiff. The firm of Grant & Eisenhofer P.A. is
rdered, this order shall apply to any securities fra d
1led in or transferred to this Court.

SO ORDERED.
Dated:

August 4, 2020

19

Cf, e.g., Iron Workers Local M . 25 Pension Fund v. Credit-Based Asset Servicing~
Securitization, LLC, 616 F. Sup . 2d 461, 464 (S.D.N.Y. 2009) ("The theory of thes~
provisions was that ifan investor ith a large financial stake in the litigation was made lea~
plaintiff, such a plaintiff- freque tly a large institution or otherwise sophisticated investor
- would be motivated to act like a 'real' client, carefully choosing counsel and monitorink
counsel's performance to make sure that adequate representation was delivered at a
reasonable price." (citation omitt d)).
20

See Dkt. 51 at 6-7. Moreover, th argument is waived because it was raised for the firsJ
time in the Williams Group's rep brief. See, e.g. , Cioffi v. Averill Park Cent. Sch. Dist
Ed. ofEd. , 444 F.3d 158, 169 (2d Cir. 2006).