GMO & Coinbase (GYEN Tokens)

According to the complaint, defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the company’s business, operations, and prospects. Specifically, defendants allegedly failed to disclose to investors that:

Summary

Plaintiffs allege that GYEN is a security under the federal securities laws and that defendants are liable for failing to register it as such. Plaintiffs further allege that defendants made materially false and misleading statements in connection with GYEN, including in a whitepaper and in other communications to investors, by offering GYEN as pegged to the Japanese yen at a one-to-one ratio, 100% collateralized by fiat currency, and therefore a safe investment protected from volatility. On at least two occasions since GYEN was introduced-in May 2021 and again in November 2021-the peg broke and GYEN experienced wild volatility, causing harm to investors.

In Depth -Long Quotations

“GMO Trust’s materials omitted facts that were critically important and would be material to any potential GYEN purchaser. GMO Trust omitted from its whitepaper, marketing, disclosures, and publicly-filed documents, that the asset’s value was liable to fall out-of-line with the one-to-one peg to the Japanese yen. Purchasers seeing GMO Trust’s marketing would believe the value of a GYEN token was necessarily equal to the value of one Japanese yen. In truth, the value of GYEN depended on the liquidity of GYEN itself and had little connection at all to the value of the yen. This general fact was true because of a litany of other facts, similarly omitted from GMO Trust’s disclosures, including:

• The value of GYEN was subject to fluctuations completely independent of the Japanese yen when traded on third-party exchange platforms;
• An insufficient supply of minted GYEN to meet demand for the asset subjected the asset to low liquidity, particularly when it was first made available for purchase on third-party exchanges;
• When the asset’s low liquidity coincided with a period of high demand, such as when it was initially promoted and introduced on a third-party exchange, its value was prone to rise relative to the Japanese yen such that it became “unpegged;”
• Investors could place buy orders for GYEN at a time when the asset’s value appeared pegged to the Japanese yen, but delays in filling the order could cause the price they actually paid for the asset to be higher than the value of the yen;
• Purchasers of GYEN who entered into purchase contracts when the asset was unpegged were purchasing an asset that was not, in fact, valued at a ratio of one GYEN-to-one Japanese yen;
• Purchasers whose orders for GYEN were filled at times when the asset was unpegged from the Japanese yen had no right to redeem the asset, which they had been misled to believe was valued at a one-to-one ratio with the Japanese yen when they purchased it, at a one-to-one value when it later returned to the peg.
[…]

As a consequence of GMO Trust’s false claims of the GYEN’s one-to-one peg to the yen, Coinbase’s adoption of those false claims, both entities’ omission of the fact that GYEN was not designed to hold a value pegged to the yen, and Coinbase’s restriction prohibiting investors from liquidating their GYEN as it plummeted, several hundred purchasers lost vast sums, some losing hundreds of thousands of dollars in just hours, causing them grief, anxiety, stress, and outrage.”