Constellation Network Hit with Class Action Over ‘Swap’ to Mainnet DAG Cryptocurrency Token

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Sixty-five plaintiffs have signed onto a proposed class action in which they allege Constellation Network has unlawfully refused to allow investors to participate in a “swap” of the company’s original cryptocurrency token, ERC-20 DAG, to its second token. 

The 55-page lawsuit claims Constellation Network’s apparent refusal to allow certain individuals to swap from the initial token to the Mainnet DAG token has had the effect of excluding a large swath of investors from exchanging their ERC-20 DAG tokens, for which the defendant has essentially created a secondary market. 

According to the complaint, Constellation’s DAG token is characterized as a “directed acyclic graph” that purports to implement a horizontally scalable blockchain architecture known as Extended Trust Chain with a peer-to-peer layer known as a gossip protocol. The case states the ERC-20 DAG tokens are blockchain-based assets that are created using the Ethereum blockchain. 

The suit alleges San Francisco-based Constellation, a cybersecurity firm specializing in “big” data sets and data sources, and its top officers’ “use of misleading marketing” helped artificially inflate interest in Constellation, which, in turn, has led investors looking to invest in the Mainnet DAG token to mistakenly purchase the unswapped ERC-20 DAG tokens. 

The plaintiffs allege Constellation and its execs are incentivized to continue to exclude ERC-20 DAG token holders from swapping to the Mainnet DAG token because allowing the swap would decrease the defendants’ proportional share of the tokens and the monetary value of their Mainnet DAG holdings. 

The suit says that following an initial coin offering for which Constellation raised $33.7 million in 2018, former CEO Branden Playford “mysteriously stepped down from his position” amid rumors that he had squandered the proceeds from the ICO trading day. In response, investors demanded to know what had actually occurred, the case relays. However, instead of disclosing information on Playford and the ICO proceeds, the defendants, according to the lawsuit, engaged in a scheme to render early investors’ ERC-20 DAG tokens worthless and then exclude as many early investors as possible from swapping the token with Constellation’s newly minted Mainnet DAG token. Another aim of the defendants, the lawsuit claims, was to lure new investors into buying the unswapped ERC-20 DAG tokens by using “dubious online promoters to engage in misleading marketing tactics” intended to inflate the token price. 

The lawsuit alleges the defendants, who controlled every aspect of the DAG token swap, including its timing and promotion, failed to provide adequate notice to investors, and made it “onerous” to swap the initial ERC-20 DAG token to the Mainnet DAG token. 

Moreover, the parties purposefully chose to move forward with the token swap “despite it taking place on a single day at the height of the COVID-19 pandemic in April 2020,” the case says. The suit charges the defendants moreover used the pandemic “as a basis for not communicating with investors” in the lead-up to the token swap, and continued to allow investors to buy the outdated ERC-20 DAG tokens on various decentralized cryptocurrency exchanges even after the token swap closed. The parties also refused to remove information on those exchanges that links the ERC-20 DAG tokens to the Mainnet DAG tokens and leads investors to believe they are buying an official Constellation digital asset instead of its now-defunct cryptocurrency, the lawsuit alleges. 

The case looks to represent all persons who, from January 1, 2017 through November 16, 2021, bought Constellation’s ERC-20 DAG tokens and were subsequently barred by the company and its co-defendants from swapping the tokens to the Mainnet DAG tokens. 

Named as defendants alongside Constellation are CEO Benjamin Jorgenson, CTO Wyat Meldman-Floch, Chief Strategy Officer Benjamin Diggles, co-founder Mathias Goldmann and co-founder and COO Altif Brown. 

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