Wireless Network Firm Sued for Selling Unregistered Securities, Expiring Gift Cards
Pollen Mobile, a subsidiary of Pronto.ai, violated federal and California securities laws by selling unregistered securities and expiring gift cards, alleged a class action Wednesday (docket 3:23-cv-04023) in U.S. District Court for Northern California in San Francisco.
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Pollen created a decentralized wireless network in early 2022, which allowed people to create wireless network coverage using their own antennas and wired internet connections. To help seed the market, the company sold wireless providers radio equipment in exchange for money but paid them in Pollen Coin (PCN), “a crypto token that Pollen minted from thin air and which it shortly thereafter sold to investors for cash as well,” said the complaint.
PCN is valuable “only if the Pollen network is successful, which depends entirely on the efforts of Pollen,” said the complaint. Though Pollen claimed in its technical documentation that PCN would have a fixed value of 10 cents for use on the Pollen network, “it admitted there and elsewhere that Pollen would be empowered to change that value,” said the complaint. When PCN was sold to the public, including to plaintiff Layer Zero, a blockchain network technology company, PCN “was a security,” said the complaint, but Pollen “never registered or qualified PCN.”
In January, Pollen Chief Financial Officer Christian Kurasek said the company “was concerned about ‘the current regulatory environment’ for “token-only projects,” so it declared that future payments to wireless providers would be in U.S. dollars and that PCN would be “pegged to the US Dollar at a value of 1$ PCN:USD $0.10 for purposes of making purchases within the Pollen network,” said the complaint. “This time, Pollen was not empowered to change the peg,” said the complaint. “Afraid that its original ‘ponzi’ scheme would cause problems in the ‘current regulatory environment,’" Pollen converted its securities to gift certificates, it said.
California Civil Code Section 1749.5 requires a gift certificate with a cash value of less than $10 to be redeemable for its cash value, said the complaint. On March 22, Layer Zero, alongside others, demanded that Pollen exchange its PCN for U.S. dollars at 10 cents apiece, it said, but Pollen “refused.” Plaintiff David Hudson of California made the same request July 10, and he, too, was refused.
Pollen then announced it was starting a business called Pollen One, through which users “can evidently create wireless coverage and buy it back from themselves,” said the complaint. The company said it wasn't then adding any new members to the Pollen Mobile network, meaning plaintiffs“cannot use their PCN to buy data, rendering PCN useless in violation" of the Credit Card Accountability Responsibility and Disclosure Act (CARD). CARD forbids selling gift cards that expire, except for situations that don’t apply in this case, it said.
Layer Zero brings the case on behalf of itself and all other buyers of wireless equipment from Pollen “to rescind those sales or for rescissory damages” under the federal and California securities laws, said the complaint. Hudson brings the action on behalf of himself and all other PCN holders to redeem his gift certificates and for actual and statutory damages under the federal and California gift card laws and the California Unfair Competition Law. Hudson holds “1,059,799.71 useless PCN gift certificates that Pollen refused to redeem.” Pollen didn't comment.