ATLANTA (CN) — A panel of 11th Circuit judges on Wednesday appeared poised to toss out a class action brought by investors who say rapper Clifford “T.I.” Harris and his business associate scammed them by selling worthless cryptocurrency.
All three members of a panel of the Atlanta-based appeals court seemed to reject arguments that the class claims should be allowed to go forward after a Georgia federal judge ruled that they were filed outside the one-year statute of limitations.
“I can read a room, so I know where this is going,” said an attorney for the investors. “Mr. Fedance is likely going to be out his $3,000 investment – I get it.”
In August 2017, Kenneth Fedance invested $3,000 to buy FLiK tokens, a cryptocurrency promoted by T.I. and film producer Ryan Felton. The sale of the tokens was orchestrated to help raise money to launch FLiK and its online streaming platform for music and video creators.
But the company grossly inflated the tokens’ investment potential – allegedly telling investors that tokens valued at just $0.06 at the beginning of the initial coin offering would be worth $14.99 per token in 15 months. FLiK never launched and the company no longer exists. According to court documents, the tokens were valued at about $0.008 each by August 2018.
A class of investors led by Fedance filed a May 2019 lawsuit for damages exceeding $5 million. They claimed that T.I. and Felton orchestrated a “pump-and-dump” scheme to raise millions for a cryptocurrency launch by making false representations in violation of federal and state securities laws. They also claimed that the FLiK tokens were unregistered securities.
Arguing on behalf of the class Wednesday, attorney Alexander Loftus of Loftus and Eisenberg asked the 11th Circuit panel to at least recognize the “tremendous importance” of the legal question presented by the case: whether the Securities Act allows for equitable tolling.
U.S. District Judge Charles Pannell, Jr. ruled last year that the one-year state of limitations under the Securities Act bars the claims because the class filed their lawsuit roughly 21 months after Fedance’s purchase of FLiK Tokens.
Loftus argued Wednesday that the complaint should be allowed to go forward anyway because FLiK’s founders misrepresented and concealed facts that would have allowed Fedance to discover the unlawful scheme earlier.
But U.S. Circuit Judge Robert Luck, a Donald Trump appointee, was quick to reject the possibility.
“It seems to me the problem is the allegations of your own complaint defeat any argument of equitable tolling. The allegations of what your client knew are more than sufficient to put your client on notice of the potential cause of action. It’s not something where there was a fraudulent concealment that would have led your client to believe something else. Your client was told… that these were investments,” Luck said.
Loftus countered that investors were told “that there was going to be utility” and that the tokens could be redeemed for videos.
“This isn’t Chuck E. Cheese tokens,” said U.S. Circuit Judge William Pryor, a George W. Bush appointee. “Your complaint is riddled with paragraphs about the investment nature of these tokens and that your client reasonably expected to profit from them. Your client wasn’t in any way misled about what they needed to know to know they had a claim here.”
But Loftus argued that the clock on the complaint didn’t start ticking until after investors realized the tokens were worthless.
“There’s no reason to file suit or pursue any action based on a securities violation so long as you reasonably believe [it] has utility,” he argued. “It’s not until the lack of utility is discovered that there’s anything actionable.”
Arguing on behalf of T.I., attorney Albert Chapar, Jr. of The Chapar Firm pointed out that the issue of whether the FLiK tokens were an unregistered security or not was a matter of public record.
Luck and Pryor were joined on the panel by U.S. District Judge Emily Marks, sitting by designation from the Middle District of Alabama.
T.I. settled civil charges with the U.S. Securities and Exchange Commission over the matter last year and agreed to pay a $75,000 fine.Follow @KaylaGoggin_CNS
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