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A fight over Tezos' $232 million coin offering has erupted between the cryptocurrency firm's U.S. partners and a Swiss foundation. finews.com asked digital currency lawyer Drew Hinkes to parse the details.

Drew Hinkes, many U.S. crypto firms have set up foundations in Zug, Switzerland. Why?

Firms establish foundations in Zug, Switzerland for a few reasons. First, a Swiss foundation may allow the issuer of a token to avoid paying taxes on its fundraising income. Offering through a Swiss foundation may also allow a company to avoid anti-money laundering obligations.

Finally, these companies frequently use a Swiss foundation and an arbitration provision that require any disputes to be arbitrated in Switzerland by arbitrators from Zug, with proceedings to be conducted in German as a shield against litigation risk.

«Swiss arbitration is used as a risk shield»

Using these provisions, companies can effectively bar claimants from obtaining relief unless the claimant is willing, and financially able, to get to Switzerland and hire a Swiss lawyer to try to make their case.

A Tezos investor has just brought a class-action suit against the firm in California court though, asking for his money back and then some. A hopeless undertaking?

Not quite. One important issue is how the court treats the terms and conditions of Tezos’ initial coin offering (ICO).

«Tezos taken to court in California, or in Zug?»

One of the first issues argued might be whether the case can be heard in California, and whether the case can be filed as a class action, or whether the terms and conditions, which bar class or collective proceedings and require claims to be brought in an ordinary court in Zug, Switzerland, will be enforced against the plaintiff, which may result in the California case being dismissed.

What happens now?
Tezos will probably defend itself in the class action suit. The court may decide that, based on the terms that govern the «contributions» by investors to Tezos, that the suit should be heard in Switzerland, and cannot be brought as a class action.