Nasdaq-listed technology firm Xunlei has become the subject of multiple class-action lawsuits from investors who purchased the company’s digital token, Linktoken. Xunlei is accused of misleading investors to disguise an initial coin offering (ICO) through which Linktoken was distributed.
Xunlei CEO Rejects ICO Allegations
The chief executive officer of Xunlei, Chen Lei, has rejected accusations that the company misled investors in order to illegally conduct an ICO in China.
Xunlei’s Linktoken was distributed to users in exchange for a contribution of idle internet bandwidth, according to South China Morning Post. Chen Lei has claimed that the Linktoken distribution did not comprise an ICO due to the company not raising any funds through the issuance of the tokens, and due to Linktoken comprising a utility token that is not allowed to be traded. “By making a public offering, really you need to use it to raise money. We have never used a coin to raise any money at all, that’s never our intention,” Mr. Lei stated.
In October 2017, Linktoken was launched in conjunction with other efforts by Xunlei to enter the booming blockchain industry. Whilst the distribution of the Linktoken appears to have been the catalyst for many weeks of sharp bullish action, the value of Xunlei’s stock has more than halved since posting 500% gains and setting record highs of $25 USD in November 2017.
Xunlei’s Stock Plummets
Since then, the price of Xunlei’s shares had plummeted to approximately $10 by early April, prompting some U.S.-based investors to seek action against the company for allegations of giving false and/or misleading statements regarding the legitimacy of the company’s cryptocurrency-related activities between October 2017 and January 2018. Among other allegations, investors have pointed to the requirement that they purchase hardware from Xunlei in order to share bandwidth and claim the digital tokens in return.
Chen Lei has refuted the allegations, stating “We are a small capital company, so our stock price does fluctuate, but I don’t think there’s any basis for the lawsuit because we’re operating in China and it is the Chinese law and regulations that we need to observe,” adding that “the definition of [an]ICO has to be interpreted in the Chinese market.” Mr. Lei also indicated that Xunlei is currently in the process of hiring legal counsel to refute the allegations.
Chen Lei Claims to Support Regulatory Action Against ICOs
Chen Lei also criticized initial coin offerings and advocated for greater regulatory action to be taken against such, stating “ICOs are terrible, and give a bad name to blockchain technology. Governments should clamp down on these practices – a crackdown is the only way blockchain can rebuild its reputation.” Mr. Lei added: “We have been very straight on our business practices – we do not sell tokens.”
China’s National Internet Finance Association (NIFA), a self-regulatory body established by the People’s Bank of China and authorized by China’s State Council, conducted an investigation into Xunlei’s token distribution, concluding in January the company had evaded regulations through conducting an “initial miner offering.”
NIFA stated “In the case of Lianke issued by Xunlei, for example, the issuing company in effect substitutes Lianke for the duty to pay back project contributors with legal tender, making it essentially a financing activity and a form of disguised ICO. In addition, with frequent promotional activities and publishing of trading tutorials, Xunlei has lured many citizens without sound discernment into IMO activities.”
Xunlei Shares Bounce After Blockchain Launch
Despite the controversy and ongoing class-action lawsuits, Xunlie’s stock has bounced in recent days following the company’s announcement that its “Thunderchain” blockchain platform designed to facilitate the development of decentralized applications has been launched.
Xunlei’s shares (XNET) are currently trading at $13.46, after retracing from highs of $14 on the 20th of April.
Do you think that Xunlei will be successful in evading ICO status regarding its Linktoken issuance? Share your thoughts in the comments section below
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Author: Samuel Haig