Perkins Coie ‘Misappropriated’ Money Held in Escrow for Initial Token Offering, Class Action Claims

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A proposed class action alleges Perkins Coie, LLP and several related entities misappropriated money they agreed to hold in escrow and distribute in accordance with “white paper” solicitation documents for an initial token offering (ITO) in the cryptocurrency market.

According to the 19-page case out of Washington federal court, the defendants—Perkins Coie, LLP; Perkins Coie I, P.C.; Perkins Coie California, P.C.; Perkins Coie California II, P.C.; and Perkins Coie partner Lowell Ness—breached their fiduciary duties to token buyers by failing to properly distribute ITO investment proceeds in accordance with the terms laid out in a white paper until much later than February 2018, if at all. 

“Perkins and Ness owed the Token Holders a fiduciary duty to distribute the Token investment proceeds in accordance with the White Paper’s terms and conditions,” the case contends.

To profit off the cryptocurrency mining demand for infrastructure and power, Singaporean company GigaWatt Pte., Ltd. and Washington-based affiliate Giga Watt, Inc. proposed to create a cryptocurrency mining facility in the state, the lawsuit begins. To finance the venture, known as the Giga Watt Project, the companies solicited investors, including cryptocurrency miners, to pre-purchase a “token” that represented the right to access and use one watt of power and related infrastructure to conduct cryptocurrency mining operations once the Giga Watt Project was created and operational, the suit says.

The Giga Watt companies’ promotional and solicitation materials included circulating a document, called a white paper, to prospective token investors that stated specifically that money each individual paid to pre-buy a token or tokens would be deposited in escrow and would only be released from such with the completion of the facilities, the case continues. According to the lawsuit, the escrow agent was to only disburse token investment proceeds in the same proportion as the Giga Watt Project had been completed. 

“In other words, if only 50% of the Giga Watt Project was completed, then the escrow agent was only permitted to disburse 50% of the Token investment proceeds to the GW entities,” the lawsuit reads. 

According to the case, one or more of the Giga Watt companies contracted with one or more of the defendants, through Ness, and one or more of the Perkins entities agreed to act as the escrow agent for token holders and the Giga Watt companies. 

In March 2017, Cryptonomos, a company founded by certain individuals involved in the Giga Watt companies, retained one or more of the Perkins defendants and Ness to serve as its attorneys, the complaint goes on. In May 2017, days before the launch of the ITO, the Singaporean GigaWatt also retained the Perkins defendants and Ness to serve as its attorneys, the suit says. According to the case, Cryptonomos “worked extensively on the Giga Watt Project,” structured its ITO, ran the project’s marketing campaign and managed the online platform used by token holders to pre-purchase tokens as part of the ITO. Cryptonomos was also authorized to collect token investment proceeds on behalf of GigaWatt Singapore, the lawsuit claims.

Given that pre-purchased tokens bought through the ITO were transferrable, some token holders began to sell theirs on the secondary market, with the value of each token attributable to being able to access and use the infrastructure and one watt of power when the Giga Watt project was complete, the lawsuit says. Per the case, the secondary market tokens also represented the portion of the token investment proceeds that were to have been held in escrow by one or more of the Perkins defendants and Ness for the uncompleted portion of the Giga Watt project. 

The lawsuit says, however, that the Giga Watt companies never finished the entire Giga Watt project, and Giga Watt Washington filed for bankruptcy protection in the U.S. 

As of August 4, 2017, four days after the close of the ITO, the defendants held $22,351,957.58 in token investment proceeds, representing north of 20 million pre-sold tokens, the case says. Certain refunds were issued to various token holders, the suit relays, and thereafter one or more of the defendants eventually distributed all token investment proceeds to one or more of the Giga Watt entities despite the projection’s incompletion. 

“As of approximately January 2018, the Giga Watt Project was approximately 50% complete,” the lawsuit says. “The GW Entities then stopped constructing the Giga Watt Project and no higher percentage of complete was ever obtained.”

The lawsuit looks to represent all persons who hold Giga Watt project tokens as of the date of the complaint’s filing, December 16, 2020. 

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