California Appeals Court Affirms Summary Judgment Order, Finds Dfinity Foundation Is Not a “Statutory Seller” Under Section 12(a) of the Securities Act

In Ocampo v. Dfinity Stiftung, the California Court of Appeal for the First Appellate District recently affirmed the trial court’s grant of summary judgment in favor of the Dfinity Foundation, a Swiss-based not-for-profit organization engaged in the development of a decentralized blockchain version of the internet called the “Internet Computer.”  The underlying class action was filed in June 2021, and centered around the offer and sale of the Internet Computer’s native cryptocurrency token, the Internet Computer Protocol token (“ICP”).  The plaintiff brought claims against the Dfinity Foundation (and several other defendants) for its purported role in the sale or solicitation of his ICP purchases, which the plaintiff alleged qualified as an unregistered offering and sale of securities in violation of Sections 5 and 12(a)(1) of the Securities Act. 

Background

For a defendant to be liable under Section 12(a)(1), the defendant must qualify as a “statutory seller.”  Under the Supreme Court’s decision in Pinter v. Dahl, 486 U.S. 622 (1988), and its progeny, a “statutory seller” must either (1) be the direct seller of the security to the plaintiff, or (2) solicit the plaintiff’s purchase of the security, with the purpose of serving the defendant’s own financial interests or those of the security’s owner.   

Plaintiff’s Section 12 claim against the Dfinity Foundation was the sole claim to survive four rounds of demurrers before the trial court. Generally, a defendant qualifies as a direct seller under Pinter where the defendant is the counterparty to the plaintiff’s purchase (i.e., in direct privity with plaintiff, such that the defendant “passed title” in the security to the plaintiff).  Here, the plaintiff purchased ICP on Coinbase from market-maker Wintermute Trading Ltd. (“Wintermute”).  Even though the Dfinity Foundation was not the counterparty to any of plaintiff’s purchases of ICP, the trial court allowed plaintiff’s claim to proceed on the theory that the ICP he purchased from Wintermute had been loaned to the market-maker by the Foundation, such that title in the ICP passed directly from the Foundation to plaintiff.

The lower court denied the plaintiff’s motion for class certification without prejudice in December 2024, before then granting summary judgment in the Foundation’s favor in February 2025, finding that the plaintiff failed to establish a triable issue of fact as to whether the Foundation qualified as a “statutory seller.” 

On appeal of the lower court’s summary judgment ruling, the plaintiff argued that there was a triable issue of fact as to both whether (1) the Foundation passed title directly to the plaintiff at the time of his purchases, and (2) the Foundation solicited the plaintiff’s purchase of ICP by disseminating certain promotional materials about the Internet Computer blockchain.

Decision on Appeal

The First Appellate District affirmed the trial court’s grant of summary judgment.  The court first confirmed that no triable issue of fact existed as to whether the Foundation passed title in ICP to the plaintiff.  The Foundation’s loan of ICP to Wintermute  “involved disposition of a security or interest for value and qualified as a sale under the Securities Act”—regardless of whether the Foundation may have transferred less than absolute title in ICP to Wintermute.  The appellate court also found that no triable issue of fact existed as to whether Wintermute was acting as the Foundation’s agent when it sold ICP to plaintiff (assuming, arguendo, that liability under the Securities Act can be imputed to a principal on a principal/agent basis). Because Pinter prohibits a purchaser from “recover[ing] against his seller’s seller,” plaintiff’s claim failed the first prong of Pinter.  

The appellate court similarly found that no triable issue of fact existed as to whether plaintiff satisfied the solicitation prong of Pinter.  Earlier in the case, the trial court had found that plaintiff failed even to allege adequately that the Foundation “successfully solicited” his purchases of ICP under Pinter, relying upon the First Appellate District’s decision in Jensen v. iShares Trust, 44 Cal.App.5th 618 (2020).  Jensen held that, for a communication to count as “solicitation” under Pinter, the seller must, at a minimum, directly communicate with the buyer.  “General advertising and promotions of the product to the public rather than direct or immediate solicitation of [the plaintiff’s] purchases” were insufficient. 

Since Jensen, two federal appellate courts have articulated standards for solicitation that, the Ocampo plaintiff argued, were broader than and at odds with Jensen:  Wildes v. BitConnect Int'l PLC, 25 F.4th 1341 (11th Cir. 2022), and Pino v. Cardone Cap., LLC, 55 F.4th 1253 (9th Cir. 2022).  The First Appellate District declined plaintiff’s invitation to find that Jensen was no longer good law, and instead determined that plaintiff’s claim failed under Jensen and Wildes/Pino.  The court reasoned that while Wildes and Pino found that mass communications which “urged or persuaded” a would-be purchaser to buy a security could qualify as solicitation, the mass communications to which Ocampo pointed did no such thing.  Whereas the solicitations in Wildes and Pino gestured to potential “huge profits” and specific annualized returns, respectively, the communications Ocampo viewed merely spoke highly of Dfinity’s technology, touting it as “the next best thing” and discussing the ICP token in relation to that technology.

The First Appellate Division’s decision in Ocampo is notable both for its application of Pinter’s first prong to transactions involving market-makers, and in its articulation of the requirements of Pinter’s solicitation prong.  At the time they were decided, Wildes and Pino were seen by many in the industry as groundbreaking cases that could greatly expand the kinds of defendants who might be liable under Pinter’s solicitation prong.  The First Appellate Division’s decision in Ocampo suggests a more measured reading of those cases:  While mass communications to would-be purchasers of a digital asset might qualify as solicitation under certain circumstances, those communications must be “specifically tethered to the sale of securities [i.e., the underlying digital asset],” and more than just generalized promotions of the technology underlying that asset.

Quinn Emanuel Urquhart & Sullivan, LLP represented the Dfinity Foundation before the trial court and the appellate court.