ICO Contracts: Choice of Law, Venue Selection, and How Fraud Upends It All


ICOs are multiplying. Likely siphoning early stage VC funding, initial coin offerings have raised $4 billion in 2017. Bitcoin, the standard bearer of cryptocurrencies worldwide and the most common ICO currency, hit an all-time high nearing $18,000 in mid-December. With commensurate speed, lawsuits and regulator crackdowns have followed.

In particular, a series of lawsuits surrounding the startup Tezos may provide some guidance on ICO contracts. That is, not the smart contracts that administer the cryptocurrency-for-ICO token exchange at the core of certain ICOs, but the paper contracts which (hopefully!) set forth the terms and conditions of an ICO exchange, including limitations of liability, tax responsibilities, venue selection provisions, and more.


Tezos threw a phenomenally successful ICO: $232 million raised by co-founders and spouses Arthur and Kathleen Breitmen, for an incomplete blockchain-based platform, in July 2017. Tezos’ haul shattered records for funds raised in an ICO—especially considering that these funds were ostensibly raised via bitcoin and ether, two currencies whose value continues to trend (substantially) up, raising the ICO’s ensuing estimated value to hit $1.3 billion.

Those Suits

Tezos faces at least five lawsuits, all class actions, filed in state and federal courts from Florida to California. One of these suits, captioned Gaviria v. Dynamic Ledger Solutions, Inc., et al., Case No. 6:17-CV-01959-ORL-40-KRS, attached to its complaint the Tezos Contribution and XTZ Allocation Terms and Explanatory Notes (“Tezos Terms”). The Tezos Terms, according to the complaint, memorialize the terms of the Tezos ICO’s fundraising offer—and are “unenforceable for a variety of reasons.” Gaviria, at 14.

Early Guidance

While the Tezos suits have yet to be resolved, and the validity of their arguments yet to be tested, guidance may be gleaned already for the fast-moving ICO space. In particular, the Tezos suits offer a lesson for ICO contract drafters on choice of law and venue selection provisions.

Choice of Law & Venue—Meet Fraud

Tezos, like certain other ICOs, sought to adjudicate litigation concerning their enterprise in a foreign jurisdiction. Via the very last provision of the Tezos Terms, any disputes “arising out of or in connection with” Tezos’ ICO are restricted “exclusively and finally [to] the ordinary courts of Zug, Switzerland.” Gaviria, at Exhibit A. Tezos’ choice of law was Swiss as well. Id.

Organizations running ICOs, like many other enterprises, don’t want to travel far to litigate, produce witnesses, and transport evidence. Hence, venue selection clauses. Also like many other organizations, those running ICOs seek regulatory havens. Jurisdictions they think align with the claims they might make (and field) should litigation arise. In fact, Kathleen Breitman told Reuters in June that Tezos chose to incorporate the Tezos Foundation in Zug since Switzerland “has a regulatory authority that had a sufficient amount of oversight but not like anything too crazy.” Each party’s assessment along these lines informs its agreement’s choice of law clause.

Generally, courts afford venue selection clauses significant deference, even when the chosen jurisdiction is a non-U.S. state. After all, the parties assumedly negotiated these clauses prior to signing the agreement. Today, the majority of federal courts (including those of the 2nd, 4th, 7th, 8th, 9th, 10th and 11th circuits—which include New York, Florida, and California) strictly enforce forum-selection clauses. The Supreme Court of the U.S. blessed this trend, ruling that “forum-selection clauses should control except in unusual cases.” Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 571 U.S. 488 (2013). The same applies for choice of law clauses. The Restatement (Second) of the Conflicts of Laws provides that choice of law provisions are presumptively enforceable.

That said, how can Tezos be sued—multiple times—in California and Florida, at opposite ends of the country whose laws Tezos sought to avoid altogether?

Because fraud wasn’t part of the agreement.

Fraud features heavily across the Tezos litigation. For example, each in their own way, the Tezos suits allege that the utility tokens (i.e. markers of purchased services or access) that Tezos distributed to its “donors” in exchange for their “donations” during the Tezos ICO were actually unregistered securities, sold in violation of the Securities Act of 1933. Gaviria, at 31. By misleading ICO participants about the unregistered securities status of these tokens—a “material fact” highly relevant to the ICO participants—Tezos “fraudulently induced [the ICO class] to participate in the ICO.” Id., at 34. 

Fraud is kryptonite for forum selection clauses in federal court.  Decades ago the Supreme Court ruled that where enforcement of a forum selection clause would be “unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching,” it should not be enforced. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). As for choice of law clauses, fraud can defeat those too. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991).

Therefore, by claiming that the Tezos Terms were “induced by fraud and overreaching” (Gaviria, at 24), the plaintiffs at play may succeed in superimposing their own venue selection—Florida, for instance—over Tezos and its Swiss preferences.


ICOs operate for now in a regulatory gray-space. While crypto-entrepreneurs consider the securities status of their tokens, publish ambitious marketing materials, and hunt for ICO participants, they must also consider the jurisdictional impact their decisions might have on their ICO contracts—regardless of the law and venue they select.