Xunlei, a NASDAQ-listed cloud network provider, was slapped with multiple class-action lawsuits by investors who purchased the company-issued digital token – Linktoken – reported News.Bitcoin.com.
The lawsuits, which were filed in the United States accuse the firm of disguising an initial coin offering (ICO) in China through which it distributed the tokens.
However, Xunlei’s CEO Chen Lei rejected all the allegations. According to his statement to the South China Morning Post, the company is not involved in any wrongdoing as the Linktoken was not distributed via an ICO.
Lei denies that the distribution of Linktoken was an ICO, as the tokens are not traded on any cryptocurrency exchange. Moreover, he mentioned that the firm did not raise any money through its token distribution.
He stated: “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.”
After the firm’s token distribution in October, its share price exploded to reach nearly $25 from below $4.5 by the end of November. However, the price boom was short-lived as the stock price soon plummeted to around $12 by January this year.
“ICOs are terrible”
Chen Lei, himself, is not a supporter of ICOs. The South Morning China Post quoted him: “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.”
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“We have been very straight on our business practices – we do not sell tokens,” he added.
After the distribution of Xunlei’s token, 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 against the distribution process and the results were not in favor of the company.
The report of 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.”
This primarily alerted the investors and led to the filling of multiple class action lawsuits.
Last Friday, Xunlei officially launched its native blockchain platform, called ThunderChain. The company will primarily use the platform for bookkeeping and tracking how much bandwidth a particular user has contributed to Xunlei’s cloud computing network.
In exchange, users can use the tokens to redeem third-party live video services and other services such as auctions and online games developed on the blockchain platform.
This launch proved to be a success for the firm as its stock bounced back to touch $14 on April 20.