Some dissatisfied investors have filed a lawsuit against Compound Finance to revoke the sale of its native COMP token.
The lawsuit, filed by a handful of retail investors, also calls for an investor refund premium while claiming the offering was unregistered.
COMP shall be a security
In the file it says
“COMP is a security. Users buy COMP to gain an ownership interest in the Compound business and expect to reap profits based on the efforts of the Partner Defendants and a handful of others who collectively control and manage the business.”
The lawsuit alleges that SEC did not receive registration statements regarding the offering of COMP tokens. As a result, the plaintiffs in the class action are seeking damages.
The legal document also questions the promotion of “community governance,” though Compound Labs allegedly ensures insiders remain accountable for the company. Compound uses so-called “yield farming” or “liquidity mining” to incentivize users to deposit or borrow money. In turn, it was used to pay fees through the allocation of “governance” tokens. But it didn’t allow retail token holders any real leverage over the company, the document claimed.
In addition, the lawsuit alleges that COMP’s value rose from $93.30 to $335.82 in a five-day “speculation frenzy.”
However, the document describes that “about two weeks after COMP’s public launch, the price took a nosedive, falling from around $372 per token to around $200 per token.”
It’s no surprise that many crypto retailers have been burned over the past year. Cryptocurrencies across the board have continued to fall in value – many to multi-year lows. However, it should be noted that three of the plaintiffs named in the lawsuit only invested a total of $80.
This makes the suit look rather frivolous. Especially when you consider the billions of dollars lost from the recent FTX, Celcius, and Terra collapses.
COMP price in USD chart by BeInCrypto
Fall in prices affecting private investors
The “coinbase effect,” according to the lawsuit, also contributed to the price surge. This refers to the surge in price that has occurred over and over again when users find out that a particular asset is being listed on the exchange.
The case found
“COMP retail buyers have generally not fared well. The value of COMP peaked in May 2021 at almost $500 per token. This equated to a total market cap of approximately $4 billion. The value soon halved, and as of fall 2021, COMP’s market cap was just over $2 billion.”
At press time, COMP is trading in the $38-$40 price range. The price is down about 95% compared to its all-time high of $910 set in May of last year.
Notably, the document also claims that Coinbase’s venture arm had an existing stake in Compound Finance. In particular, the Compound protocol is one of the most well-known DeFi protocols with a TVL of $1.78 billion.
To counter the token sale in the class action, plaintiff is including individuals who acquired COMP on or after December 8, 2021.
Disclaimer
BeInCrypto has reached out to companies or individuals involved in the story for an official statement on recent developments, but has yet to receive a response.
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