Fei team faces collective lawsuit, never expected to see a court account on Discord one day.

Fei team sued, surprised to find court account on Discord.

Is it fair to sue the project team on the grounds of “selling unregistered securities”?

What is Fei and what has happened recently?

Fei is a decentralized stablecoin project that was once popular and aimed to provide value anchored to the US dollar. Fei Protocol was launched in the spring of 2021 and was one of the few pure algorithmic stablecoins supported by cryptocurrencies at the time. The project introduced the concept of “protocol-controlled value,” which means that deep liquidity is owned and managed by the protocol and cannot be removed at any time, unlike other systems.

Recently, Fei Protocol released a settlement plan for a class action lawsuit, and the San Francisco Superior Court personally announced on the Fei Protocol Discord channel that wallet users who participated in the Fei Protocol Genesis event can fill out a form to apply for a settlement compensation, which is the industry’s first case of its kind in the crypto world.

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Previous summary: 2022 hacker incidents and voting disputes

Fei suffered several hacker attacks in 2022, which led to doubts about the protocol and technical capabilities in the community.

The most severe hack directly led to the split of the Fei community in 2022. In the middle of 2022, after the merger of the TribeDAO organization behind Fei and Rari Capital, they suffered a re-entry attack, which resulted in the theft of $80 million in crypto assets. After the theft, two completely different voices appeared, which led to community turmoil and almost splitting, and the entire Fei Protocol gradually came to an end in this dispute.

So what are the two different voices?

One plan is to fully compensate the victims of the hacker incident through the TRIBE (Fei’s governance token) token pool, which is also a common practice used by project parties after being attacked, which means that the project funds are used to offset the losses of relevant parties. However, this proposal was later rejected in the vote, mainly because the Fei team believed that the hacker mainly attacked the other party Rari in the merger, and TribeDAO was also a victim of the hacker attack, so it should not be compensated by TribeDAO, at least not in full. They supported another proposal that suggested keeping the FEI stablecoin stable with the US dollar and using the funds from 57 million TRIBE tokens to compensate the victims of the hacker. This solution is not a full compensation, so it has been criticized by many people. Some critics claim that the partial compensation plan proposed by the Fei team retains most of the project funds.

Class Action Lawsuit for 2023

After the chaotic events of 2022, Fei Protocol and its three founders are facing a class action lawsuit this year for one of the most familiar reasons in the cryptocurrency space: accusations that Fei’s tokens, FEI and TRIBE, are unregistered securities. On July 9th of this year, a San Francisco court took over Fei Protocol’s Discord server and issued an authorization notice, publicizing the proposed settlement agreement, which would pay individuals and entities who purchased FEI or TRIBE tokens during the Genesis Event $17.85 million in damages.

According to court documents, the primary violation was the sale of unregistered securities, and during a period of time “the FEI token failed to maintain its peg and traded as low as $0.7128 per FEI. Investors sought to exit their positions quickly, but were punished by Fei Protocol’s “direct incentive” for doing so. Anyone attempting to sell FEI during this time suffered losses. The TRIBE token also failed to maintain its value, dropping by over 80% compared to its Genesis Event opening price.” In short, the plaintiffs in the class action lawsuit claim that Fei sold unregistered securities and caused them significant losses.

What’s interesting about this lawsuit is that if Fei did sell unregistered securities, it raises the question of whether the plaintiffs were aware of this when they made their purchases. The entire lawsuit document makes no mention of the plaintiffs being deceived or completely unaware of whether they were purchasing registered securities. If the reason for the lawsuit is the sale of unregistered securities and losses to users, it sounds very unfair to the project side: if you make money, there’s no problem, but once it drops, all the users who participated in the ICO can use “unregistered securities” as a reason to sue and demand compensation, then who would want to be a project side?

According to the settlement agreement, the net settlement fund will be distributed proportionally to the collective members who submit claims after deducting attorney fees and court costs. The fund is expected to be worth $13 million and requires approval. Eligible individuals and entities can submit a claim form to receive a portion of the settlement amount, object, or choose to opt-out and preserve the right to bring a separate lawsuit against Fei Protocol.

The website offers four options for Genesis members

The Fei Protocol team denies any wrongdoing. However, the entire incident has raised concerns and uncertainties about the future development of Fei Protocol.

The court will hold a hearing in the future to consider whether to approve the settlement agreement. Odaily Planet Daily will also keep an eye on the development of this event.

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