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Case 3:17-cv-07095-RS Document 8 Filed 12/14/17 Page 1 of 4

Reed R. Kathrein (139304)
1 Peter E. Borkon (212596)
2 Danielle Charles (291237)
HAGENS BERMAN SOBOL SHAPIRO LLP
3 715 Hearst Avenue, Suite 202
Berkeley, CA 94710
4 Telephone: (510) 725-3000
Facsimile: (510) 725-3001
5
reed@hbsslaw.com
6 peterb@hbsslaw.com
daniellec@hbsslaw.com
7

8 Attorneys for Plaintiffs
[Additional counsel listed on signature page]
9
UNITED STATES DISTRICT COURT
10
FOR THE NORTHERN DISTRICT OF CALIFORNIA
11

12 BRUCE MACDONALD, Individually and on Case No. 3:17-cv-07095-RS
Behalf of All Others Similarly Situated,
13 EX PARTE APPLICATION FOR
14 Plaintiff, TEMPORARY RESTRAINING
ORDER AND ORDER TO SHOW
15 v. CAUSE WHY A PRELIMINARY
INJUNCTION SHOULD NOT ISSUE
16 DYNAMIC LEDGER SOLUTIONS, INC., a
Delaware corporation, TEZOS
17 STIFTUNG, a Swiss Foundation,
18 KATHLEEN BREITMAN, an
Individual, ARTHUR BREITMAN,
19 an Individual, TIMOTHY COOK DRAPER, an
individual, DRAPER ASSOCIATES, JOHANN
20 GEVERS, DIEGO PONZ, GUIDO SCHMITZ-
KRUMMACHER, BITCOIN SUISSE AG,
21
NIKLAS NIKOLAJSEN and DOES 1-100,
22 INCLUSIVE,

23 Defendants.

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Case 3:17-cv-07095-RS Document 8 Filed 12/14/17 Page 2 of 4

1 APPLICATION

2
Pursuant to Rule 65(b) of the Federal Rules of Civil Procedure, Plaintiff Bruce MacDonald
3
(“Plaintiff”) moves for a temporary restraining order (“TRO”) freezing all assets of Defendants1
4
collected via or derived from the Tezos Initial Coin Offering (the “Tezos ICO” and the “ICO
5
Proceeds,” respectively) and restraining and enjoining Defendants from selling, transferring,
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converting, or otherwise disposing of any of the ICO Proceeds or taking any action to authorize
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anyone else to sell, transfer, convert, or otherwise dispose of any of the ICO Proceeds until Plaintiff
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has had sufficient time to conduct appropriate discovery in preparation for a preliminary injunction
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hearing and this Court issues a ruling on its Order to Show Cause Why a Preliminary Injunction
10
Should Not Issue.
11
Three other actions concerning the Tezos ICO have been filed in this court, or are otherwise
12
related to this action (Case Nos. 3:17-cv-06779-RS; 3:17-cv-06850-RS; and 3:17-cv-06829-RS). In
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one of these actions, a Motion for Preliminary Injunction is pending, with a hearing scheduled for
14
January 11, 2018.2 However, the situation regarding the ICO Proceeds has deteriorated further,
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making irreparable looting an imminent prospect. Two days ago, one of three directors of the
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Foundation resigned—creating further turmoil and raising serious questions about the safety of the
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ICO proceeds raised in July.3 The currency tendered by the investors was worth $232 million at the
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time and is now reportedly worth over $1 billion. Waiting almost four weeks to address these
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concerns could be too late.
20
Moreover, the present action differs from the other actions in that it makes only state law
21

22 1
Defendants are Dynamic Ledger Solutions, Inc. (“DLS”), Tezos Stiftung (the “Tezos
23 Foundation”), Kathleen Breitman, Arthur Breitman, Timothy Cook Draper, Draper Associates,
Johann Gevers, Diego Ponz, Guido Schmitz-Krummacher, Bitcoin Suisse AG, and Niklas
24 Nikolajsen.
25 2
See Okusko v. Dynamic Ledger Solutions, Inc. et al. (N.D. Cal. Dec. 4, 2017, Case No. 3:17-cv-
06829-RS) at ECF. No. 9.
26 3
Reuters, Tezos director resigns, sowing more uncertainty .t crypt startup. December 12, 2017,
27 https://www.reuters.com/article/us-bitcoin-tezos-board/tezos-director-resigns-sowing-more-
uncertainty-at-crypto-startup-idUSKBN1E62KN
28 APPLICATION FOR TRO - 1
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Case 3:17-cv-07095-RS Document 8 Filed 12/14/17 Page 3 of 4

1 claims for relief, and names additional defendants who, together with the other defendants represent

2 what is believed to be all of the controlling signatories for the ICO funds at issue. The present action

3 also does not have a Securities Act cause of action, which means it is not subject to the automatic

4 stay of discovery or lead plaintiff procedures required under the Private Securities Litigation Reform

5 Act of 1995 (PSLRA).

6 Importantly, the hearing scheduled for January 11, 2018 is based on a motion that does not

7 address the more pressing concern of the Defendants’ current and ongoing sale and conversion of

8 ICO proceeds—which is the primary basis of the urgency of this Application for a Temporary

9 Restraining Order. Once converted to cash, the currency may no longer be traceable to Defendants or

10 their original owners. And as cash, it can disappear quickly into the void.

11 Counsel for Plaintiff has given notice or attempted to give notice to each of the Defendants of

12 the date and substance of this Application as set forth in the accompanying Certification Regarding

13 Notice. Counsel for Defendant Dynamic Ledger Solutions, Inc. has replied to the notice by email and

14 stated that “We will oppose any application for a temporary restraining order, and we wish to be

15 heard in opposition to any such application.” A copy of that email is attached as Exhibit A to the

16 Certification Regarding Notice.

17 This application is made on the grounds set forth in the accompanying Memorandum in

18 Support; and exhibits attached thereto; all pleadings and papers filed in this action; the argument of
19 counsel; and further evidence as the Court may consider at or before a hearing regarding this

20 Application or the hearing regarding the Order to Show Cause requested herein.

21 DATED: December 14, 2017 HAGENS BERMAN SOBOL SHAPIRO LLP

22 By: /s/ Reed R. Kathrein
23 Reed R. Kathrein (139304)
Peter E. Borkon (212596)
24 Danielle Charles (291237)
715 Hearst Ave., Suite 202
25 Berkeley, CA 94710
Telephone: (510) 725-3000
26
Facsimile: (510) 725-3001
27 Email: reed@hbsslaw.com
peterb@hbsslaw.com
28 APPLICATION FOR TRO - 2
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daniellec@hbsslaw.com
1

2 Steve W. Berman
HAGENS BERMAN SOBOL SHAPIRO LLP
3 1918 Eighth Avenue, Suite 3300
Seattle, WA 98101
4 Telephone: (206) 623-7292
Facsimile: (206) 623-0594
5 Email: steve@hbsslaw.com
6 Jason M. Leviton (pro hac vice to be submitted)
Joel A. Fleming (281264)
7 Jacob A. Walker (271217)
BLOCK & LEVITON LLP
8 155 Federal Street, Suite 400
Boston, MA 02110
9 Telephone: (617) 398-5600
Facsimile: (617) 507-6020
10 Email: jason@blockesq.com
joel@blockesq.com
11 jake@blockesq.com
12
Attorneys for Plaintiffs
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28 APPLICATION FOR TRO - 3
Case No.: 3:17-cv-07095-JSC
Case 3:17-cv-07095-RS Document 8-1 Filed 12/14/17 Page 1 of 26

Reed R. Kathrein (139304)
1 Peter E. Borkon (212596)
2 Danielle Charles (291237)
HAGENS BERMAN SOBOL SHAPIRO LLP
3 715 Hearst Avenue, Suite 202
Berkeley, CA 94710
4 Telephone: (510) 725-3000
Facsimile: (510) 725-3001
5
reed@hbsslaw.com
6 peterb@hbsslaw.com
daniellec@hbsslaw.com
7

8 Attorneys for Plaintiffs
[Additional counsel listed on signature page]
9
UNITED STATES DISTRICT COURT
10
FOR THE NORTHERN DISTRICT OF CALIFORNIA
11

12 BRUCE MACDONALD, Individually and on Case No. 3:17-cv-07095-RS
Behalf of All Others Similarly Situated,
13 PLAINTIFF’S MEMORANDUM OF
14 Plaintiff, LAW IN SUPPORT OF EX PARTE
APPLICATION FOR TEMPORARY
15 v. RESTRAINING ORDER AND
ORDER TO SHOW CAUSE WHY A
16 DYNAMIC LEDGER SOLUTIONS, INC., a PRELIMINARY INJUNCTION
Delaware corporation, TEZOS SHOULD NOT ISSUE
17 STIFTUNG, a Swiss Foundation,
18 KATHLEEN BREITMAN, an
Individual, ARTHUR BREITMAN,
19 an Individual, TIMOTHY COOK DRAPER, an
individual, DRAPER ASSOCIATES, JOHANN
20 GEVERS, DIEGO PONZ, GUIDO SCHMITZ-
KRUMMACHER, BITCOIN SUISSE AG,
21
NIKLAS NIKOLAJSEN and DOES 1-100,
22 INCLUSIVE,

23 Defendants.

24

25

26
27

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Case 3:17-cv-07095-RS Document 8-1 Filed 12/14/17 Page 2 of 26

TABLE OF CONTENTS
1
I. INTRODUCTION ...................................................................................................................1
2
II. FACTS .....................................................................................................................................4
3
III. ARGUMENT ..........................................................................................................................6
4
A. Injunctive Relief Is Available and Appropriate for the Claims Asserted. ...................6
5
B. Plaintiff Must Show (1) A Likelihood of Success on the Merits; (2) A Likelihood of
6 Irreparable Harm; (3) The Balance of Equities Tips in His Favor; and (4) An
Injunction Is In the Public Interest ..............................................................................8
7
C. Plaintiff and the Class Are Likely To Prevail On The Merits .....................................9
8
a. The Tezos ICO Was Governed By Federal and California Law and the Court
9 Has Personal Jurisdiction over the Defendants ...............................................9
10 b. The Tezos ICO Was an Offer and Sale of Securities ....................................10
11 c. The California Securities Act and the UCL Forbid Selling or Participating In
the Sale of Unregistered Securities................................................................13
12
D. Plaintiff and the Class Will Suffer Irreparable Harm in the Absence of Preliminary
13 Relief .........................................................................................................................15
14 E. The Balance of Equities Weighs In Favor Of Plaintiff and the Class .......................18
15 F. A Temporary Restraining Order is in The Public Interest ........................................19
16 IV. CONCLUSION .....................................................................................................................19
17

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28 APPLICATION FOR TRO - i
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TABLE OF AUTHORITIES
1
Cases
2
Absolute Activist Value Master Fund Ltd. v. Ficeto,
3 677 F.3d 60 (2d Cir. 2012) ................................................................................................................ 8
4 American LegalNet, Inc. v. Davis,
673 F.Supp.2d 1063 (C.D. Cal. 2009) ............................................................................................... 6
5
Chanel, Inc. v. Partnerships or Unincorporated Associations Identified on Schedule “A”,
6 No. C-13-02645 RS, 2013 WL 12120213 (N.D. Cal. June 14, 2013) .............................................. 7
7 Connecticut Gen. Life Ins. Co. v. New Images of Beverly Hills,
321 F.3d 878 (9th Cir. 2003) ........................................................................................................... 14
8
Cotter v. Lyft, Inc.,
9 60 F. Supp. 3d 1067 (N.D. Cal. 2015) ............................................................................................. 12
10 Davis v. Metro Productions, Inc.,
885 F.2d 515 (9th Cir. 1989) ............................................................................................................. 9
11
Deckert v. Independence Shares Corp.,
12 311 U.S. 282 (1940) .......................................................................................................................... 6
13 Dollar Systems, Inc. v. Avcar Leasing Systems, Inc.,
890 F.2d 165 (9th Cir. 1989) ............................................................................................................. 7
14
Fidelity Nat. Title Ins. Co. v. Castle,
15 No. C 11-00896 SI, 2011 WL 5882878 (N.D. Cal. Nov. 23, 2011)................................................ 18
16 Greater Houston Transp. Co. v. Uber Techs., Inc.,
No. CIV.A. 4:14-0941, 2015 WL 1034254 (S.D. Tex. Mar. 10, 2015) .......................................... 12
17
Grupo Mexicano de Desarrollo S.A. v. All. Bond Fund, Inc.,
18 527 U.S. 308 (1999) .......................................................................................................................... 6
19 Gwin v. Pac. Coast Fin. Servs.,
No. 09CV2734 BTM (BLM), 2010 WL 2609359 (S.D. Cal. June 28, 2010) ................................... 8
20
Hall v. Superior Court,
21 150 Cal.App.3d 411 (1983) ............................................................................................................... 8
22 Hamelin v. Allstate Insurance Co.,
No. 01-cv-7954, 2002 WL 441581 (C.D. Cal. Mar. 12, 2002) ......................................................... 7
23
Hernandez v. Sessions,
24 872 F.3d 976 (9th Cir. 2017) ........................................................................................................... 17
25 In re CINAR Corp. Sec. Litig.,
186 F Supp 2d 279 (E.D.N.Y. 2002) ................................................................................................. 9
26
In re Focus Media Inc.,
27 387 F.3d 1077 (9th Cir. 2004) ........................................................................................................... 6
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1 In re Heritage Village Church and Missionary Fellowship, Inc.,
137 B.R. 888 (Bankr. D.S.C. 1991)................................................................................................. 12
2 In re LDK Solar Sec. Litig.,
No. C0705182WHA, 2008 WL 4369987 (N.D. Cal. Sept. 24, 2008) ............................................... 9
3
In re Royal Ahold N.V. Sec. & ERISA Litig.,
4 351 F Supp 2d 334 (D. Md. 2004)..................................................................................................... 9
5 In re SFPP Right-of-Way Claims,
No. CV 15-7492, 2016 WL 6138423 (C.D. Cal. Jan. 21, 2016) ....................................................... 8
6
Johnson v. Couturier,
7 572 F.3d 1067 (9th Cir. 2009) ......................................................................................................... 18
8 Kokka & Backus, PC v. Bloch,
No. C 10-0110-RS, 2010 WL 331336 (N.D. Cal. Jan. 20, 2010) ..................................................... 6
9
Kremen v. Cohen,
10 No. 5:11-cv-05411-LHK, 2011 WL 6113198 (N.D. Cal. Dec. 7, 2011) ........................................ 18
11 Moran v. Prime Healthcare Management Inc.,
3 Cal.App.5th 1131 (2016) .............................................................................................................. 13
12
Moreland v. Dep't of Corps.,
13 194 Cal. App. 3d 506 (1987) ........................................................................................................... 11
14 Moss v. Kroner,
197 Cal.App.4th 860 (2011) ............................................................................................................ 13
15
Overstock.com, Inc. v. Gradient Analytics, Inc.,
16 151 Cal.App.4th 688 (2007) ............................................................................................................ 14
17 Pashaian v. Eccelston Properties, Ltd.,
88 F.3d 77 (2d Cir. 1996) ................................................................................................................ 14
18
People v. Black,
19 8 Cal.App.5th 889 (2017) ................................................................................................................ 10
20 Providence Health & Servs. v. McLaughlin,
No. C17-24 RAJ, 2017 WL 68426 (W.D. Wash. Jan. 6, 2017) ........................................................ 8
21
Romero-Barcelo,
22 456 U.S. 305 (1982) ........................................................................................................................ 18
23 Rose v. Bank of America, N.A.,
57 Cal.4th 390 (2013) ...................................................................................................................... 14
24
Roskind v. Morgan Stanley Dean Witter & Co.,
25 80 Cal.App.4th 345 (2000) .............................................................................................................. 14
26 SEC v. Bar Works Capital, LLC,
No. 17-CV-04396, 2017 WL 4642311 (N.D. Cal. Oct. 16, 2017) .................................................. 17
27

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SEC v. Bivona,
1 16-CV-01386-EMC, 2016 WL 2996903 (N.D. Cal. May 25, 2016) ................................................ 6
2 SEC v. Glenn W. Turner Enters., Inc.,
474 F.2d 476 (9th Cir. 1973) ........................................................................................................... 12
3
SEC v. Milan Capital Group, Inc.,
4 No. OO CIV. 108(DKC), 2000 WL 520653 (S.D.N.Y. Apr. 28, 2000) ......................................... 14
5 SEC v. Murphy,
626 F.2d 633 (9th Cir. 1980). .......................................................................................................... 13
6
SEC v. Shavers,
7 4:13-CV-416, 2013 WL 4028182 (E.D. Tex. Aug. 6, 2013) .......................................................... 10
8 SEC v. Traffic Monsoon, LLC,
245 F.Supp.3d 1275 (D. Utah 2017) ................................................................................................. 8
9
SEC v. W.J. Howey Co.,
10 328 U.S. 293 (1946) .......................................................................................................................... 9
11 Silver Hills Country Club v. Sobieski,
55 Cal.2d 811 (1961) ....................................................................................................................... 10
12
Stokes v. Henson,
13 217 Cal.App.3d 187 (1990) ............................................................................................................... 7
14 Stormans, Inc. v. Selecky,
586 F.3d 1109 (9th Cir. 2009) ........................................................................................................... 7
15
Transfirst Group, Inc. v. Magliarditi,
16 217CV00487APGVCF, 2017 WL 2294288 (D. Nev. May 25, 2017) ............................................ 14
17 U.S. v. Faiella,
39 F.Supp.3d 544 (S.D.N.Y. 2014) ................................................................................................. 10
18
United States v. Ulbricht,
19 858 F.3d 71 (2d Cir. 2017) ................................................................................................................ 1
20 Warfield v. Alaniz,
569 F.3d 1015 (9th Cir. 2009) ................................................................................................... 11, 12
21
Winter v. Natural Res. Def. Council, Inc.,
22 555 U.S. 7 (2008) ........................................................................................................................ 7, 17
23
Statutes
24
Cal. Bus. & Prof. Code § 17200 et seq. ............................................................................................. 1, 6
25
California Corporate Securities Act of 1968 ......................................................................................... 2
26 Cal. Corp. Code § 25110 ............................................................................................................. 1, 13
Cal. Corp. Code § 25503 ................................................................................................................. 15
27

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Securities Act of 1933 ......................................................................................................................... 13
1
Other Authorities
2
Michaels, Dave & Paul Vigna,
3 SEC Chief Fires Warning Shot Against Coin Offerings, WALL STREET JOURNAL (Nov. 9, 2017) . 10
4 Popper, Nathaniel,
Initial Coin Offerings Horrify A Former SEC Regulator, N.Y. TIMES (Nov. 26, 2017)............. 2, 10
5
Sauter, Benjamin, David McGill, & Brian Klein,
6 Initial Coin Offerings: Where the SEC Might Stand, COINDESK (June 16, 2017), available at
https://www.coindesk.com/initial-coin-offering-ico-where-sec-might-stand/ ................................ 12
7
SEC Release No. 81207,
8 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The
DAO (July 25, 2017)........................................................................................................................ 10
9
Rules
10
Fed. R. Civ. P. 65(b) .............................................................................................................................. 7
11

12

13

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15

16

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19

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1 I. INTRODUCTION

2 Plaintiff Bruce MacDonald, individually and on behalf of the Class, seeks a Temporary

3 Restraining Order to stop Defendants from further misappropriating investor funds illegally raised

4 through the unqualified and unregistered offer and sale of securities referred to as Tezos tokens (aka

5 “XTZ”, “Tezzies” or “tez”). As alleged in the Complaint, Defendants illegally sold unqualified

6 securities in violation of California’s Corporate Securities Law of 1968 (Cal. Corp. Code § 25110)

7 and California’s Unfair Competition Law (Cal. Bus. & Prof. Code § 17200 et seq.). In doing so,

8 Defendants collected approximately $232 million USD worth of cryptocurrencies from investors

9 (primarily Bitcoin and Ethereum), now worth over $1.2 billion USD. At present, an ongoing

10 combination of the conversion of ICO proceeds, accusations of self-dealing, a lack of transparency, a

11 lack of regulatory oversight, a refusal to acknowledge investor concerns or claims, and unreported

12 payments, bonuses, and fees all threaten the proceeds collected from the Class.

13 Two days ago—December 12, 2017—Reuters reported that Defendant Schmitz-Krummacher

14 had resigned from the three-member board of Defendant Tezos Stiftung (the “Tezos Foundation” or

15 the “Foundation”), the entity that currently holds the investor funds at issue. Schmitz-Krummacher’s

16 replacement will be handpicked by Defendant Johann Gevers, one of the other directors. Gevers has

17 been accused by Defendants Arthur and Kathleen Breitman of “self-dealing, self-promotion,

18 []conflicts of interest,” and “enriching” himself through an unjustified seven-figure “bonus.” By
19 choosing a compliant director, Gevers can gain effective majority control of the Tezos Foundation’s

20 board—creating a significant risk to the assets that rightfully belong to Plaintiff and other class

21 members. Without immediate judicial intervention, Defendants may completely consume the

22 illegally obtained ICO proceeds, leaving Plaintiff and the Class with no remedy.

23 In July 2017, Defendants conducted an “Initial Coin Offering” or “ICO” to fund the

24 development of Tezos (the “Tezos ICO”)—a blockchain technology.4 The ICO acronym is evocative

25
Defendants have posited the Tezos project as somewhat similar to Bitcoin, which “allow[s]
4

26 vendors and customers to maintain their anonymity in the same way that cash does, by transferring
Bitcoins between anonymous Bitcoin accounts, which do not contain any identifying information
27 about the user of each account. The currency is ‘traceable’ in that the transaction history of each
individual Bitcoin is logged in what is called the blockchain. The blockchain prevents a person from
28 APPLICATION FOR TRO - 1
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1 of “IPO” and deliberately so. Initial coin offerings—including the Tezos ICO—mimic the economics

2 of a traditional initial public offering in almost every way: issuers raise funds from widely dispersed

3 public investors who pay money with the expectation of earning a profit from the issuers’ activities.

4 But the Tezos ICO made no attempt to comply with SEC regulations or state blue sky laws

5 requiring the registration of public offerings. In the words of one former SEC Commissioner,

6 “I.C.O.s represent the most pervasive, open and notorious violation” of the securities laws “since the

7 Code of Hammurabi.”5 On December 11, 2017, the current SEC Chairman put out a formal

8 statement addressing ICOs, noting “[i]t is especially troubling when”—as in the case of Tezos—

9 “the promoters of these offerings emphasize the secondary market trading potential of these tokens.

10 Prospective purchasers are being sold on the potential for tokens to increase in value—with the

11 ability to lock in those increases by reselling the tokens on a secondary market—or to otherwise

12 profit from the tokens based on the efforts of others. These are key hallmarks of a security and a

13 securities offering.”6

14 As with other ICOs, Defendants marketed the Tezos tokens sold in the ICO as an investment.

15 And in the two-week Tezos ICO, Defendants raised significant sums of so-called cryptocurrency

16 (primarily Bitcoin and Ethereum) valued, at the time, at approximately $232 million USD. Since the

17 ICO, those cryptocurrencies have increased dramatically in value and the Tezos ICO Proceeds are

18 now worth over $1 billion USD.
19 The issuance and sales of Tezos tokens in the ICO were securities transactions. By selling

20 and/or participating in the sale of unregistered securities, Defendants violated the California

21

22 spending the same Bitcoin twice, allowing Bitcoin to operate similarly to a traditional form of
currency. Bitcoin is also a completely decentralized currency, operating free of nation states or
23 central banks; anyone who downloads the Bitcoin software becomes part of the Bitcoin network. The
blockchain is stored on that network, and the blockchain automatically ‘self-updates’ when a Bitcoin
24 transaction takes place.” United States v. Ulbricht, 858 F.3d 71, 83 (2d Cir. 2017).
25 5
Nathaniel Popper, Initial Coin Offerings Horrify A Former SEC Regulator, N.Y. TIMES (Nov.
26 26, 2017) (quoting former SEC Commissioner, Joseph Grundfest).
6
27 Jay Clayton, Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017),
available at: https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11
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1 Corporate Securities Act of 1968 (hereafter, the “California Securities Act”) and the Unfair

2 Competition Law (hereafter, “UCL”). Plaintiff and other investors in the ICO are entitled to

3 rescission, restitution, and/or disgorgement.

4 But those remedies may be illusory unless this Court grants preliminary relief. The

5 cryptocurrency that Plaintiff and putative Class members paid—and seek to have returned—is being

6 looted by the Defendants. Specifically, the cryptocurrency paid by Plaintiff and other investors is

7 currently held by the Tezos Foundation. Defendants Gevers, Ponz, and Schmitz-Krummacher are (or,

8 in Schmitz-Krummacher’s case, were) the Foundation’s directors. Some unknown combination of

9 the Defendants control the distribution of the Foundation’s assets—including the cryptocurrency that

10 Plaintiff and other investors are entitled to have returned—through a complex “multisignature

11 procedure.”7

12 On October 18, 2017, a lawyer for Tezos’s founders, Defendants Arthur and Kathleen

13 Breitman, sent a 46-page letter accusing Defendant Gevers of “self-dealing, self-promotion, and

14 conflicts of interest.” The Breitmans suggested further that Gevers was “enriching” himself through

15 an unjustified seven-figure “bonus.” Gevers has fired back—accusing the Breitmans of “character

16 assassination,” “misleading statements and outright lies” and accusing his fellow board members,

17 Ponz, and Schmitz-Krummacher of an “illegal coup.” The Foundation appears to have fired its

18 auditors and has provided no explanation why.8 Now Schmitz-Krummacher has resigned and his
19 replacement will be named by Gevers.

20 Plaintiff and the Class cannot afford to wait until trial to sort out who is cheating whom. And

21 they shouldn’t have to. No matter who is telling the truth about the internal dispute, all of the

22 7
On December 6, 2017, a Swiss journalist reported that one of the required signatories is
23 Defendant Bitcoin Suisse AG: “Bitcoin Suisse has broken its silence to reveal that it has the
responsibility of counter-signing every transaction that the foundation makes. In other words, the
24 foundation cannot spend a cent unless Bitcoin Suisse agrees.”
8
25 The Foundation has also been converting some of its cryptocurrency holdings to cash, committing
ICO proceeds to “venture capital partner[ships] to be announced,” and distributing funds to
26 Defendant DLS, a Delaware corporation owned by Defendants Arthur Breitman, Kathleen Breitman,
Draper, and Draper Associates. The Breitmans have also sought to have the Foundation pay their
27 legal fees.
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1 Defendants engaged in an illegal scheme to sell unregistered securities. As a result, Plaintiff and the

2 Class are entitled to rescission and restitution of the cryptocurrency that they paid in the ICO. The

3 Court should enter an injunction freezing the ICO Proceeds and enjoining Defendants from further

4 transfers to ensure that restitution and rescission are meaningful remedies.

5 II. FACTS

6 The Tezos project was the brainchild of Defendants Arthur and Kathleen Breitman, a

7 husband and wife team, who were, at all relevant times, citizens of California. ¶16. In August and

8 September 2014, Arthur Breitman, under the pseudonym “L.M. Goodman,” released a Position

9 Paper and White Paper, touting Tezos as a “self-amending crypto-ledger.” ¶44. Arthur Breitman also

10 authored a “Tezos Business Plan” in early 2015, in which he listed himself as chief executive of

11 Tezos. ¶45.

12 In August 2015, Arthur Breitman created and incorporated Dynamic Ledger Solutions Inc.

13 (“DLS”) in Delaware to develop Tezos, listing himself as chief executive. ¶46. DLS has been

14 principally operated out of the home of Arthur and Kathleen Breitman in Mountain View, California,

15 and continues to be owned and controlled by Arthur Breitman, Kathleen Breitman, Timothy Draper,

16 and Draper Associates. ¶46. In a pre-sale, ten early backers, including hedge funds and high net-

17 worth individuals, provided the Breitmans with $612,000 in exchange for XTZ tokens equivalent to

18 $893,200.77 in contributions (corresponding to a 31.48% discount). ¶47.
19 Around May 2017, the Tezos project started running out of cash, and Defendant Kathleen

20 Breitman reached out to Defendant Timothy Draper, who invested $1.5 million into Tezos through

21 his firm, Draper Associates. ¶48. As a result of the investment, Draper Associates also took a

22 minority stake in DLS, which controls the Tezos source code and other intellectual property. ¶48.

23 On or about April 24, 2017, the Foundation was formed as a Swiss nonprofit (Stiftungen) in

24 Zug, Switzerland, purportedly to promote the development and use of the Tezos blockchain, and to

25 be the recipient of ICO funds. ¶49. Defendants Gevers, Ponz, and Schmitz-Krummacher were named

26 as the Foundation’s directors. ¶22. A contract between DLS and the Foundation was signed in June
27 2017. ¶52. The agreement, which is not public, governs the sale of DLS and its intellectual property

28 APPLICATION FOR TRO - 4
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1 to the Foundation and states that the Swiss federal supervisory authority for foundations must

2 approve the agreement. ¶52. It also indicates that approval was required before the fundraiser took

3 place. ¶52. This approval has never taken place, and documents provided to participants in the

4 fundraiser did not mention the required approval by the Swiss authority. ¶52. The façade of the

5 Tezos Foundation being a completely separate and distinct entity is further weakened by the fact that

6 DLS and the Breitmans have now turned to the Tezos Foundation’s funds (i.e., the ICO proceeds) in

7 an attempt to pay their legal fees incurred in connection with defending the illegal offering. ¶52.

8 On May 5, 2017, less than two months before the start of the Tezos ICO, Defendant Timothy

9 Draper promoted the Tezos ICO by announcing his investment in Tezos. ¶53. He became, according

10 to Reuters, the “first prominent venture capitalist to openly embrace initial coin offerings.” ¶53.

11 Draper promoted the ICO, stating that “The best thing I can do is lead by example,” implying that he

12 was standing in the same position as any other ICO participant. ¶54. “Over time, I actually feel that

13 some of these tokens are going to improve the world, and I want to make sure those tokens get

14 promoted as well. I think Tezos is one of those tokens.” ¶54. A July 7, 2017 story in the Wall Street

15 Journal noted that Tezos was “helped by having one prominent backer: Tim Draper, a founder of the

16 Silicon Valley venture-capital firm Draper Fisher Jurvetson. Mr. Draper’s small undisclosed personal

17 investment in the firm, and his public pledge to buy into the initial coin offering, significantly raised

18 Tezos’s profile.” ¶54.
19 The Tezos ICO began on July 1, 2017 and lasted about two weeks. ¶63. The Tezos ICO was

20 “uncapped” which meant that there was no limit on the amount of payments that were accepted. ¶63.

21 Defendants attempted to characterize the payments made by Plaintiff and other investors as

22 “contributions” but as their own statements and promotional materials make clear, the Tezos tokens

23 were marketed as an investment. ¶¶64, 65.

24 Ultimately, the Tezos ICO collected 65,627 Bitcoin and 361,122 Ethereum, including 18.145

25 Ethereum from Plaintiff, a California resident. ¶¶5, 20. At the time of the Tezos ICO, the combined

26 value of those cryptocurrencies was approximately $232 million USD. ¶5. Today, they would be
27 worth over $1 billion USD. ¶5.

28 APPLICATION FOR TRO - 5
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1 In an August 2017 update, the Foundation stated that it had “been slowly converting these

2 assets [i.e., the cryptocurrency paid by Plaintiff and other investors] into cash at a pace of roughly

3 CHF 500,000 per day.” ¶107. On August 10, 2017, the Foundation announced that it had committed

4 $50 million USD in ICO proceeds “through venture capital partners to be announced” and was

5 creating “a direct venture arm” for “companies looking to build on the Tezos platform.” ¶110. The

6 Foundation has also given funds to DLS. ¶111.

7 On or around October 18, 2017, an attorney for the Breitmans sent a 46-page letter to

8 Defendants Ponz, and Schmitz-Krummacher, calling for Gevers’ prompt removal from the

9 Foundation’s board. ¶103. The document accuses Gevers of “self-dealing, self-promotion and

10 conflicts of interest.” ¶103. According to the Breitmans, Gevers has been improperly enriching

11 himself through an unjustified seven-figure “bonus.” ¶102. Gevers responded by accusing the

12 Breitmans of “character assassination,” “misleading statements and outright lies” and accusing Ponz

13 and Schmitz-Krummacher of an “illegal coup.” ¶104. The Tezos Foundation promised that an audit

14 of the ICO Proceeds would be published in November 2017. ¶ 112. But no report has been

15 forthcoming and a document filed with the Swiss Commercial Register indicates that the Foundation

16 has terminated the auditing firm Lufida Revision AG. ¶112.

17 On December 12, 2017, Reuters reported that Schmitz-Krummacher resigned from his

18 position as a director and that “[u]nder the foundation’s bylaws, Gevers gets to nominate Schmitz-
19 Krummacher’s replacement. If the third board member votes against the candidate, Gevers can cast

20 an overriding vote.” ¶28.

21 III. ARGUMENT

22 A. Injunctive Relief Is Available and Appropriate for the Claims Asserted.

23 Section 17203 of California’s Unfair Competition Law explicitly authorizes the Court to

24 provide for injunctive relief in instances such as the present action. It states:

25 Any person who engages, has engaged, or proposes to engage in unfair
competition may be enjoined in any court of competent jurisdiction. The court
26 may make such orders or judgments, including the appointment of a
receiver, as may be necessary to prevent the use or employment by any person of
27 any practice which constitutes unfair competition, as defined in this chapter, or as
28 APPLICATION FOR TRO - 6
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may be necessary to restore to any person in interest any money or property,
1 real or personal, which may have been acquired by means of such unfair
2 competition.9
The Supreme Court has limited the availability of pre-judgment injunctions imposing asset
3
freezes for claims seeking money damages. Grupo Mexicano de Desarrollo S.A. v. All. Bond Fund,
4
Inc., 527 U.S. 308 (1999). But where, as here, a complaint seeks equitable relief, it is—and
5
remains—well-established that a district court has authority to issue injunctive relief “to preserve the
6
status quo pending final determination,” particularly where, as here, there is reason to believe that the
7
assets in question are “in danger of dissipation or depletion.” Deckert v. Independence Shares Corp.,
8
311 U.S. 282, 290 (1940); In re Focus Media Inc., 387 F.3d 1077, 1084 (9th Cir. 2004) (“when
9
equitable claims are at issue … the rule barring issuance of a preliminary injunction freezing assets is
10
inapplicable”).10
11
This Court has recognized that “a court may issue preliminary relief to preserve the status
12
quo as to property, where the plaintiff is claiming some sort of equitable right in it.” Kokka &
13
Backus, PC v. Bloch, No. C 10-0110-RS, 2010 WL 331336, at *2 (N.D. Cal. Jan. 20, 2010)
14
(Seeborg, J.); see also SEC v. Bivona, 2016 WL 2996903, at *2 (N.D. Cal. May 25, 2016) (“The
15
preliminary injunction will preserve the assets, preventing the ‘irreparable harm’ of those assets
16
being dissipated.”).
17
Here, Plaintiff and the Class assert claims under the California Securities Law and the UCL.
18
Both statutes provide for equitable remedies: rescission11 or restitution.12 As such, injunctive relief
19
preserving the Tezos Foundation’s assets is legally authorized and appropriate.
20

21 9
Cal. Bus & Prof. Code § 17203 (emphasis added).
22 10
“Expedited discovery is … appropriate when a plaintiff seeks injunctive relief because of the
expedited nature of injunctive proceedings,” and Plaintiff will be filing a motion seeking such
23 discovery shortly. American LegalNet, Inc. v. Davis, 673 F.Supp.2d 1063, 1066 (C.D. Cal. 2009).
24 11
“For violation of section 25110, rescission damages are allowed under section 25503.” Stokes
25 v. Henson, 217 Cal.App.3d 187, 193 (1990); Dollar Systems, Inc. v. Avcar Leasing Systems, Inc., 890
F.2d 165, 170 (9th Cir. 1989) (“Rescission is an equitable remedy …”).
26
12
See Hamelin v. Allstate Insurance Co., No. 01-cv-7954, 2002 WL 441581, at *2 (C.D. Cal.
27 Mar. 12, 2002) (“Only equitable relief is available under UCL; money damages are not available.
However, restitution and disgorgement, which traditionally are equitable remedies, are also available
28 APPLICATION FOR TRO - 7
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B. Plaintiff Must Show (1) A Likelihood of Success on the Merits; (2) A Likelihood of
1 Irreparable Harm; (3) The Balance of Equities Tips in His Favor; and (4) An Injunction
2 Is In the Public Interest
A temporary restraining order (“TRO”) may be granted on an ex parte basis where “specific
3
facts in … a verified complaint clearly show that immediate and irreparable injury, loss, or damage
4
will result to the movant before the adverse party can be heard in opposition; and … the movant's
5
attorney certifies in writing any efforts made to give notice and the reasons why it should not be
6
required.” Fed. R. Civ. Proc. 65(b).
7
“In federal practice, a verified complaint . . . functions as an affidavit” and can serve as
8
evidence supporting a TRO. In re SFPP Right-of-Way Claims, No. CV 15-7492, 2016 WL 6138423,
9
at *5 (C.D. Cal. Jan. 21, 2016) (internal citations and quotations omitted); Providence Health &
10
Servs. v. McLaughlin, No. C17-24 RAJ, 2017 WL 68426, at *2 (W.D. Wash. Jan. 6, 2017) (“Having
11
considered Plaintiff’s verified complaint, motions, supporting certificate, and governing law, the
12
Court finds that the TRO without notice is appropriate in this case.”); “Gwin v. Pac. Coast Fin.
13
Servs., No. 09CV2734 BTM (BLM), 2010 WL 2609359, at *1 (S.D. Cal. June 28, 2010) (“Although
14
Defendants argue that they have not produced any evidence supporting it, the Court can consider as
15
evidence Plaintiffs’ First Amended Complaint because it is verified.”).
16
The standard for obtaining a TRO is the same as the standard for obtaining a preliminary
17
injunction. Chanel, Inc. v. Partnerships or Unincorporated Associations Identified on Schedule “A”,
18
No. C-13-02645 RS, 2013 WL 12120213, at *1 (N.D. Cal. June 14, 2013). A plaintiff must show
19
that (1) he is likely to succeed on the merits, (2) he is likely to suffer irreparable harm in the absence
20
of preliminary relief, (3) the balance of equities tips in his favor, and (4) an injunction is in the public
21
interest. Stormans, Inc. v. Selecky, 586 F.3d 1109, 1127 (9th Cir. 2009) (citing Winter v. Natural Res.
22
Def. Council, Inc., 555 U.S. 7, 20 (2008)).
23
Plaintiff here satisfies all four Winter factors.
24

25

26
27 under UCL.”)
28 APPLICATION FOR TRO - 8
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1 C. Plaintiff and the Class Are Likely To Prevail On The Merits

2 Plaintiff and the Class assert two counts targeting the same misconduct: the sale of unregistered

3 securities. There will be no dispute that the Tezos tokens were unregistered and widely offered to the

4 public. ¶¶3, 55, 126. The core merits question, at the heart of both counts will be whether the Tezos

5 ICO constituted the offer and sale of “securities.” Plaintiff and the Class have a strong likelihood of

6 prevailing.

7 a. The Tezos ICO Was Governed By Federal and California Law and the Court
Has Personal Jurisdiction over the Defendants
8
As a threshold question, there is little dispute that California (and federal) law applied to the
9
Tezos ICO. Where non-exchange-listed securities are offered and sold over the Internet, the offer
10
takes place in the location of the seller (here, California) and the sale takes place in both the location
11
of the seller and the location of the buyer (here, also California). See Securities and Exchange
12
Commission v. Traffic Monsoon, LLC, 245 F.Supp.3d 1275, 1296 (D. Utah 2017) (“Section 17(a),
13
therefore, applies to AdPacks sold to individuals outside the United States for two reasons. As noted
14
above, the sale occurs both in the United States and in the foreign country of the purchaser. In
15
addition, Traffic Monsoon's offer to sell AdPacks over the internet occurred in the United States
16
where Traffic Monsoon, LLC is located.”); Absolute Activist Value Master Fund Ltd. v. Ficeto, 677
17
F.3d 60, 68 (2d Cir. 2012) (“[T]o adequately allege the existence of a domestic transaction, it is
18
sufficient for a plaintiff to allege facts leading to the plausible inference that the parties incurred
19
irrevocable liability within the United States: that is, that the purchaser incurred irrevocable liability
20
within the United States to take and pay for a security, or that the seller incurred irrevocable liability
21
within the United States to deliver a security.”); Hall v. Superior Court, 150 Cal.App.3d 411, 418
22
(1983) (“the right of a buyer of securities in California to have California law and its concomitant
23
nuances apply to any future dispute arising out of the transaction is a provision … which cannot be
24
waived or evaded by stipulation of the parties to a securities transaction.”) (internal quotations
25
omitted).
26
The Court also has personal jurisdiction over all of the Defendants. The Breitmans, DLS,
27
Draper, and Draper Associates are all California citizens. ¶16. The remaining defendants are Swiss
28 APPLICATION FOR TRO - 9
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1 (or, at least, resident in Switzerland). ¶¶22, 26, 27, 28, 29, 30. But by purposefully targeting investors

2 in California and the United States, the Swiss defendants made themselves subject to the personal

3 jurisdiction of this Court. In the context of traditional initial public offerings (“IPOs”), courts have

4 not hesitated to find jurisdiction over foreign defendants who participated in an IPO. See, e.g., Davis

5 v. Metro Productions, Inc., 885 F.2d 515, 523 (9th Cir. 1989) (Due Process clause permitted exercise

6 of personal jurisdiction over officers and directors of issuer who had “fair warning” that they could

7 be haled into district court in Arizona where statute created “personal[] liab[ility] for securities

8 violations” and defendants knew that issuer was soliciting investors in Arizona); In re LDK Solar

9 Sec. Litig., No. C0705182WHA, 2008 WL 4369987, at *6 (N.D. Cal. Sept. 24, 2008) (“Plaintiffs

10 base their jurisdictional claim predominantly on defendants’ role in their company's 2007 initial

11 public offering. In mid–2007, LDK sold shares on the New York Stock Exchange in order to raise

12 badly needed funding. Defendants signed the prospectus for the offering and caused it to be filed

13 with the SEC. … Plaintiffs have satisfied their burden of establishing personal jurisdiction based on

14 these well-pled allegations, subject to proof at trial.”); In re Royal Ahold N.V. Sec. & ERISA Litig.,

15 351 F Supp 2d 334, 351–52 (D. Md. 2004) (“courts frequently have asserted personal jurisdiction

16 over individual defendants who sign or, as control persons, approve the filing or disseminating of,

17 particular forms required by the SEC which they knew or should have known would be relied on by

18 U.S. investors.”) (collecting cases); In re CINAR Corp. Sec. Litig., 186 F Supp 2d 279, 305–06
19 (E.D.N.Y. 2002) (“The Court finds that it is perfectly reasonable to exercise jurisdiction over Corbeil

20 based solely on her signing the 1999 Registration Statement.”). The same result should hold true for

21 the Tezos ICO.

22 b. The Tezos ICO Was an Offer and Sale of Securities

23 A transaction or investment vehicle is a security under federal law if “the scheme involves an

24 investment of money in a common enterprise with profits to come solely from the efforts of others.”

25 SEC v. W.J. Howey Co., 328 U.S. 293, 301 (1946). A transaction is a security under California law if

26 it satisfies either the Howey test or the slightly-more flexible “risk capital” test of Silver Hills
27

28 APPLICATION FOR TRO - 10
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1 Country Club v. Sobieski, 55 Cal.2d 811 (1961).13 See People v. Black, 8 Cal.App.5th 889, 900

2 (2017) (“[B]oth the risk capital and federal tests may be applied, either separately or together; a

3 transaction is a security if it satisfies either test.”).

4 The tokens sold in the Tezos ICO qualify under either test. The current Chairman of the SEC

5 says he has “yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.”14 A

6 former SEC Commissioner says that “I.C.O.s represent the most pervasive, open and notorious

7 violation of federal securities laws since the Code of Hammurabi.”15 The SEC has issued an

8 extensive Investigative Report concluding that a similar ICO constituted the sale of unregistered

9 securities. See SEC Release No. 81207, Report of Investigation Pursuant to Section 21(a) of the

10 Securities Exchange Act of 1934: The DAO (July 25, 2017).

11 i. Plaintiff and other Class members invested money in a common
enterprise
12
The Bitcoin and Ethereum raised by Defendants from Plaintiff and other class members are
13
money/funds. See U.S. v. Faiella, 39 F.Supp.3d 544, 545 (S.D.N.Y. 2014) (Rakoff, J.) (“Bitcoin
14
clearly qualifies as ‘money’ or ‘funds’ under these plain meaning definitions. Bitcoin can be easily
15
purchased in exchange for ordinary currency, acts as a denominator of value, and is used to conduct
16
financial transactions.”); SEC v. Shavers, 2013 WL 4028182, at *2 (E.D. Tex. Aug. 6, 2013) (“It is
17
clear that Bitcoin can be used as money. It can be used to purchase goods or services.... [I]t can also
18
be exchanged for conventional currencies....”). The money that they invested was pooled together
19
with the stated goal of funding further development of Tezos’ blockchain technology. ¶¶83, 89.
20

21
13
The risk-capital test deems an investment to be a security if it “involves an attempt by an issuer
22 to raise funds for a business venture or enterprise; an indiscriminate offering to the public at large
where the persons solicited are selected at random; a passive position on the part of the investor; and
23
the conduct of the enterprise by the issuer with other people’s money.” Silver Hills (1961) 55 Cal.2d
24 811, 815.
14
25 See Dave Michaels and Paul Vigna, SEC Chief Fires Warning Shot Against Coin Offerings,
WALL STREET JOURNAL (Nov. 9, 2017) (quoting SEC Chairman Jay Clayton).
26
15
Nathaniel Popper, Initial Coin Offerings Horrify A Former SEC Regulator, N.Y. TIMES (Nov.
27 26, 2017) (quoting former SEC Commissioner, Joseph Grundfest).
28 APPLICATION FOR TRO - 11
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ii. Plaintiff and other Class members were passive investors who had a
1 reasonable expectation of profit from the efforts of others
2 Defendants’ attempts to label these payments as “contributions” cannot overcome the
3 obvious economic substance of the transaction: an investment made with the expectation of a profit.
4 Defendants’ own statements acknowledge as much:
5  When a Reuters reporter asked Defendant Timothy Draper “how much he donated during
the Tezos fundraiser, he replied via email, ‘You mean how much I bought? A lot.’” (¶67)
6

7  Draper has also stated that “[a]ll tokens we hope to receive that we didn’t buy in the Pre-
sale (alongside with all the other investors who participated) will vest over time with the
8 founders’ tokens.” In the same statement, Draper said: “If [Defendants Arthur Breitman
and Kathleen Breitman] are successful [in developing the Tezos tokens], they might just
9 transform society, and we will all be better off as a result, and then, maybe 5 or ten years
down the road, my investors and I might get rich.” (¶83).
10

11  Defendant Kathleen Breitman represented that Defendants were “selling” the Tezos
tokens, stating: “we’re selling, rather the Foundation is recommending an allocation of
12 tokens to the genesis block based on donations to a Swiss non-profit. And there’s a
suggested allocation amount. So one bitcoin for 5000 tokens. And were going to sell them
13 over the course of, rather have them up for donation over the course of two weeks.” (¶73).
14  The Tezos.com Frequently Asked Questions (“FAQ”) webpage states that “token holders
can receive rewards for participating in the proof-of-stake consensus mechanism” (¶83).
15

16  The Tezos Overview document stated developers will be “compensate[d]” with Tezos
tokens that “have immediate value rather than forcing them to seek corporate
17 sponsorships, foundation salaries, or work for Internet fame alone” (¶83).
18  The statement on the Tezos Overview document stated that long-term governance goals
include “favoring decisions that tend toward increasing the value of the tokens.” (¶83).
19

20 It is “the substance of the transaction rather than its form [that] governs[.]” Moreland v. Dep't
21 of Corps., 194 Cal. App. 3d 506, 512 (1987). Courts do not—and this Court should not—hesitate to
22 re-characterize “donations” that are, in fact, payments.
23 In Warfield v. Alaniz, the Ninth Circuit addressed this issue in a lengthy, well-reasoned
24 opinion. 569 F.3d 1015 (9th Cir. 2009). It rejected defendants’ argument that “purchasers of … gift
25 annuities made no investment of money because they lacked the intent to realize a financial gain and
26 were motivated solely to make a charitable donation,” and held that the “gifts” were in fact purchases
27 of securities where, as here, the annuities were marketed as investments. Id. at 1021. Other courts
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1 have, in analogous circumstances, reached the same result. See, e.g., Cotter v. Lyft, Inc., 60 F. Supp.

2 3d 1067, 1080 (N.D. Cal. 2015); Greater Houston Transp. Co. v. Uber Techs., Inc., No. CIV.A.

3 4:14-0941, 2015 WL 1034254, at *17 (S.D. Tex. Mar. 10, 2015); In re Heritage Village Church and

4 Missionary Fellowship, Inc., 137 B.R. 888, 891 (Bankr. D.S.C. 1991). Even the Breitmans’ lawyer

5 agrees: “If the underlying economic substance of the ICO looks or feels like an investment, simply

6 calling it by another name (for example, a 'donation', 'presale' or 'crowdsale') may not carry the

7 day.”16

8 Finally, there can be little question that “the efforts made by those other than the investor are

9 the undeniably significant ones, those essential managerial efforts which affect the failure or success

10 of the enterprise.” SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476, 482 (9th Cir. 1973). In

11 Draper’s words, “Arthur and [K]athleen [Breitman] … made it clear to me and the other purchasers

12 that the token would require time to develop. If they are successful, they might just transform

13 society, and we will all be better off as a result, and then, maybe 5 or ten years down the road, my

14 investors and I might get rich.” ¶83. Referring to a similar initiative (Polychain), Defendant Kathleen

15 Breitman stated that “[w]e created a product that was purchased by VC investors without the

16 traditional equity investment model because of the anticipated appreciation of our token.” ¶83. In

17 other words, just like the investor who purchases a stock or a bond, Plaintiff and other Class

18 members who participated in the Tezos ICO were passive investors who hoped to benefit from
19 capital gains.

20 c. The California Securities Act and the UCL Forbid Selling or Participating In the
Sale of Unregistered Securities
21
Once the Court determines that the Tezos ICO was subject to United States and California
22
law and that the Tezos tokens are securities, there should be no question that Plaintiff is likely to
23
prevail on the merits.
24

25
16
26 See Benjamin Sauter, David McGill, and Brian Klein, Initial Coin Offerings: Where the SEC
Might Stand, COINDESK (June 16, 2017), https://www.coindesk.com/initial-coin-offering-ico-where-
27 sec-might-stand/.
28 APPLICATION FOR TRO - 13
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1 Section 25110 of the California Corporations Code provides that “[i]t is unlawful for any

2 person to offer or sell in this state any security in an issuer transaction (other than in a transaction

3 subject to Section 25120), whether or not by or through underwriters, unless such sale has been

4 qualified under Section 25111, 25112 or 25113 … or unless such security or transaction is exempted

5 or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part.”

6 Defendants made no effort to qualify their non-exempt sales via registration (Section 25111),

7 notification (Section 25112), or permit (Section 25113) and therefore violated Section 25110. In turn,

8 Section 25503 provides that any person who violates Section 25510 may be liable in a private action

9 to any person acquiring the security. And where, as here, there is a primary violation of Section

10 25503, “secondary liability may … exist under sections 25504 and 25504.1 for others who

11 participated in the violation in the specific roles listed in those sections without any further need for

12 privity between these secondarily liable actors and the plaintiff.” Moss v. Kroner, 197 Cal.App.4th

13 860, 875 (2011).

14 Similarly, subject to limited exceptions not applicable here, Section 5 of the Federal

15 Securities Act of 1933 (the “ ‘33 Act”) prohibits offering, selling, or participating17 in the sale of any

16 security in interstate commerce unless a registration statement has been filed with and declared

17 effective by the SEC—which did not happen here. 15 U.S.C. § 77(e). Section 12(a)(1) of the

18 Securities Act creates a private right of action for violations of Section 5. 15 U.S.C. § 77(a)(1).
19 These violations of the ‘33 Act and the Corporations Code constitute “unlawful” conduct

20 violating the UCL. See Moran v. Prime Healthcare Management Inc., 3 Cal.App.5th 1131, 1142

21 (2016) (“Under the unlawful prong, the UCL borrows violations of other laws ... and makes those

22 unlawful practices actionable under the UCL. Thus, a violation of another law is a predicate for

23 stating a cause of action under the UCL’s unlawful prong.”) (internal quotations omitted). The “UCL

24 contains no language supporting an exclusion for securities,” Roskind v. Morgan Stanley Dean

25 Witter & Co., 80 Cal.App.4th 345, 356 n.8 (2000), and “[v]iolations of federal statutes, including

26
17
“Those who had a necessary role in the transaction are held liable as participants.” SEC v. Murphy,
27 626 F.2d 633, 650–51 (9th Cir. 1980).
28 APPLICATION FOR TRO - 14
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1 those governing the financial industry, may serve as the predicate for a UCL cause of action.” Rose

2 v. Bank of America, N.A., 57 Cal.4th 390, 394 (2013); see also Overstock.com, Inc. v. Gradient

3 Analytics, Inc., 151 Cal.App.4th 688, 715 (2007) (sustaining UCL claim based on alleged

4 manipulation of publicly traded securities).

5 D. Plaintiff and the Class Will Suffer Irreparable Harm in the Absence of Preliminary
Relief
6
Irreparable harm is shown where a judgment on the merits would be frustrated by a defendant
7
making it uncollectible. SEC v. Milan Capital Group, Inc., No. OO CIV. 108(DKC), 2000 WL
8
520653, at *2 (S.D.N.Y. Apr. 28, 2000) (citing Pashaian v. Eccelston Properties, Ltd., 88 F.3d 77,
9
87 (2d Cir. 1996)) (internal quotations omitted). Defendants’ dissipation of assets can also constitute
10
irreparable harm. Transfirst Group, Inc. v. Magliarditi, 2017 WL 2294288, at *10 (D. Nev. May 25,
11
2017) (citing Connecticut Gen. Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 878, 881 (9th
12
Cir. 2003)).
13
Here, Plaintiff and the Class will likely face irreparable harm unless an injunction is issued
14
for several reasons.
15
Most importantly, there is reason to believe that Defendants are looting. They have provided
16
very few updates about the development of the Tezos project, even though investors in the ICO were
17
told it should have launched by now. ¶104. Similarly, because the project has not launched, investors
18
have not received their promised Tezzie tokens in return for their investment, only a promise of
19
future delivery. ¶64. Defendants Arthur and Kathleen Breitman have accused Defendant Gevers of
20
“self-dealing, self-promotion and conflicts of interest” and claim that Gevers has been improperly
21
“enriched” though seven-figure bonuses and fees out of the assets from the ICO. ¶¶102, 103.
22
Meanwhile Gevers has accused the Breitmans of “character assassination,” “misleading statements
23
and outright lies” and accused his fellow board members, Ponz, and Schmitz-Krummacher of an
24
“illegal coup.” The Tezos Foundation promised an audit of the assets obtained through the ICO
25
would be published in November, but recently fired its auditor and never provided the report. ¶112.
26
Schmitz-Krummacher has resigned and Gevers will name his replacement. ¶28. Taken together,
27
these facts raise significant concerns about the security of the funds provided by Plaintiff and the
28 APPLICATION FOR TRO - 15
Case No.:
Case 3:17-cv-07095-RS Document 8-1 Filed 12/14/17 Page 22 of 26

1 class in the ICO. Unless a temporary restraining order freezes those funds in place, Plaintiff and the

2 putative class face a significant risk that their rescission and restitution remedies will be rendered

3 utterly illusory.

4 Even if Defendants could be trusted not to steal or hide the Foundation’s assets, the

5 extraordinary volatility of the cryptocurrency market makes it necessary for Defendants to hold their

6 assets in cryptocurrency form to ensure that they can satisfy an equitable judgment. Defendants

7 collected 65,627 Bitcoin and 361,122 Ethereum as part of their illegal ICO. ¶5. That consideration

8 had a value of $232 million in U.S. dollars at the time of the ICO, but is worth over $1 billion now as

9 a result of the remarkable appreciation of Bitcoin and Ethereum since that time. Id.18

10 In the wake of the ICO, Defendants have taken steps to convert the cryptocurrencies they

11 received (i.e., Bitcoin and Ether) into what they claim is a “conservative portfolio of cash, stocks,

12 bonds, and precious metals,” and have “been slowly converting these assets into cash at a pace of

13 roughly 500,000 CHF” (or approximately $505,000 U.S. Dollars) “each day.” ¶107. Defendants have

14 also stated that they intend to use $50 million of funds obtained through the ICO to invest in

15 “companies looking to build on the Tezos platform,” ¶110, and have sought to spend some of the

16 funds on legal fees. ¶113. There are two reasons that this conversion threatens irreparable harm.

17 First, Defendants are required to provide rescission to the class in the form of the

18 cryptocurrency that a class member originally invested (i.e., Bitcoin or Ether). See, e.g., Cal. Corp.
19 Code § 25503 (a successful plaintiff is entitled “to recover the consideration he paid”). But

20 Defendants ongoing conversion of the class’ cryptocurrency investments into fiat currency (e.g., U.S.

21 Dollars or Swiss Francs) will make it increasingly difficult for Defendants to provide complete

22 rescission or restitution. For example, if Defendants converted 200 Bitcoin to cash on July 10, 2017,

23 they would have received approximately $491,200 U.S. Dollars. If Defendants were required to buy

24 back 200 Bitcoin today to provide recession to the class, they would need to pay approximately

25 $3,400,000 in U.S. Dollars to obtain those same 200 Bitcoin. The conversion of Bitcoin to cash (and

26
18
At the time of filing, 65,627 Bitcoin was worth $1.16 billion in U.S. Dollars; 361,122
27 Ethereum was worth $154.6 million U.S. Dollars.
28 APPLICATION FOR TRO - 16
Case No.:
Case 3:17-cv-07095-RS Document 8-1 Filed 12/14/17 Page 23 of 26

1 the continued conversion, should it be allowed to occur absent a temporary restraining order) already

2 makes it exceedingly unlikely that Defendants could ever provide full restitution to the class. If

3 Bitcoin continues its exponential appreciation in value, this problem will be exacerbated unless the

4 Court enters a TRO.19

5 Second, Defendants have also stated their intent to spend at least $50 million on

6 “investments” into Tezos-related companies, and to spend additional Tezos foundation assets

7 obtained from the ICO on personal legal fees related to this and other actions. ¶113. Defendant

8 Gevers has purportedly sought significant bonuses and fees from the assets obtained in the ICO.

9 ¶¶102, 103. Absent a temporary restraining order, the funds used to make these investments (many of

10 which may be to related or otherwise interested parties), to pay attorney fees, or to pay bonuses or

11 fees, will be unavailable to Plaintiff and the class.

12 In short, there is significant reason to suspect that Defendants will be unable to provide

13 rescission (or recessionary damages) to Plaintiffs if they are permitted to maintain control over the

14 Foundation and its assets. Indeed, the Swiss Foundation structure itself appears to have been

15 designed to move the assets obtained through the ICO to a location where they will be difficult to

16 collect. ¶50. The Court should enjoin all Defendants because the sale and conversion of these ICO

17 proceeds is possible only when Defendants participate in a “multi-signature procedure,” which

18 requires the use of “spending and several security checks” controlled by Defendants. ¶32. Given that
19 it is currently unknown whose signatures are required, a temporary restraining order preventing all

20 Defendants from participating in this “multi-signature procedure,” would have the effect of stopping

21 any additional dissipation of assets or conversion of cryptocurrencies obtained during the illegal ICO

22 and would help preserve at least some of the pool of assets improperly obtained in the ICO.

23

24

25 19
Even if Bitcoin or Ethereum decline in value, a temporary restraining order maintains the
26 status quo for those proceeds. Because a temporary restraining order would prevent Defendants from
distributing or converting those cryptocurrencies, they would be available to Plaintiffs who obtain
27 rescission, regardless of the price movement of those cryptocurrencies.
28 APPLICATION FOR TRO - 17
Case No.:
Case 3:17-cv-07095-RS Document 8-1 Filed 12/14/17 Page 24 of 26

1 E. The Balance of Equities Weighs In Favor Of Plaintiff and the Class

2 In evaluating the balance of equities, the Court “must consider the effect on each party of the

3 granting or withholding of the requested relief.” Winter, 555 U.S. at 24.20

4 As explained above, Plaintiff and the class are likely to suffer significant harm, and will be

5 unlikely to ever receive rescission of their investments absent injunctive relief. On the other hand,

6 the harm to Defendants is limited. Plaintiff is not requesting a freeze of all of Defendants’ assets—he

7 is simply asking that Defendants be enjoined from spending, converting, or dissipating the

8 cryptocurrency assets that they obtained through a plainly illegal offering, until additional discovery

9 and an accounting can occur.

10 This Court has found that where a party has likely obtained funds through fraud or other

11 illegality, the balance of the equities weighs in favor of a TRO preventing the dissipation of assets.

12 See, e.g., SEC v. Bar Works Capital, LLC, No. 17-CV-04396, 2017 WL 4642311, at *7 (N.D. Cal.

13 Oct. 16, 2017) (“The equities weigh in favor of granting the asset freeze. Without a freeze, defrauded

14 investors may not be able to recover moneys wrongfully obtained from them. . . . [Plaintiff’s]

15 interests, particularly in light of the showing that the [p]roperty was likely purchased with

16 fraudulently-obtained funds, outweighs any harm of temporarily preventing [Defendant] from

17 dissipating its assets.”).

18 Furthermore, the temporary restraining order sought by Plaintiffs does not encumber any
19 Defendants’ personal assets, but instead asks only for Defendants to be limited from dissipating the

20 Tezos Foundation assets obtained via an illegal unregistered offering. “[A]s long as the preliminary

21 injunction is sufficiently limited such that it does not freeze [Defendant’s] personal funds to cover

22 reasonable living expenses, the balance of equities tips in plaintiffs’ favor.” Fidelity Nat. Title Ins.

23 Co. v. Castle, No. C 11-00896 SI, 2011 WL 5882878, at *7 (N.D. Cal. Nov. 23, 2011) (citing

24 20
Courts in the Ninth Circuit take a “sliding scale” approach when balancing equities in determining
25 whether to grant a preliminary injunction. Hernandez v. Sessions, 872 F.3d 976, 990 (9th Cir. 2017)
(“Under our ‘sliding scale’ approach, the elements of the preliminary injunction test are balanced, so
26 that a stronger showing of one element may offset a weaker showing of another.”). Here, Plaintiffs
have made a particularly strong showing on both the likelihood of success and the likelihood of
27 irreparable harm, necessitating a lower showing when balancing the equities between the sides.
28 APPLICATION FOR TRO - 18
Case No.:
Case 3:17-cv-07095-RS Document 8-1 Filed 12/14/17 Page 25 of 26

1 Johnson v. Couturier, 572 F.3d 1067 (9th Cir. 2009) (finding that where an asset freeze permitted

2 defendant to cover normal living expenses and legal fees, the district court correctly concluded that a

3 narrowly tailored asset freeze would prejudice defendant less than denial of relief would prejudice

4 plaintiffs)).

5 F. A Temporary Restraining Order is in The Public Interest

6 “In exercising their sound discretion, courts of equity should pay particular regard for the

7 public consequences in employing the extraordinary remedy of injunction.” Winter, 555 U.S. at 24

8 (citing Romero-Barcelo, 456 U.S. 305, 312 (1982)). However, “[w]hen the reach of an injunction is

9 narrow, limited only to the parties, and has no impact on non-parties, the public interest will be at

10 most a neutral factor in the analysis rather than one that favors granting or denying the preliminary

11 injunction.” Kremen v. Cohen, No. 5:11-cv-05411-LHK, 2011 WL 6113198, at *7 (N.D. Cal. Dec. 7,

12 2011).

13 Here, the public interest weighs heavily in favor of granting a temporary restraining order. In

14 bold defiance of California’s investor protection laws, Defendants have obtained payments worth

15 hundreds of millions of dollars from Plaintiff and thousands of other investors in an unregistered

16 securities offering. The temporary restraining order sought protects those affected investors and

17 reinforces California’s laws. Any negative impact of the temporary restraining order will be felt not

18 by the public, but by Defendants, who will merely be prevented from further dissipating assets they
19 obtained in an illegal offering.

20 IV. CONCLUSION

21 For all the foregoing reasons, the Court should enter a TRO freezing all assets of Defendants

22 collected via or derived from the Tezos ICO and restraining and enjoining Defendants from selling,

23 transferring, converting, or otherwise disposing of any of the ICO Proceeds or taking any action to

24 authorize anyone else to sell, transfer, convert, or otherwise dispose of any of the ICO Proceeds until

25 Plaintiff has had sufficient time to conduct appropriate discovery in preparation for a preliminary

26 injunction hearing and this Court issues a ruling on its Order to Show Cause Why a Preliminary
27 Injunction Should Not Issue.

28 APPLICATION FOR TRO - 19
Case No.:
Case 3:17-cv-07095-RS Document 8-1 Filed 12/14/17 Page 26 of 26

1 DATED: December 14, 2017 HAGENS BERMAN SOBOL SHAPIRO LLP

2 By: /s/ Reed R. Kathrein
3 Reed R. Kathrein (139304)
Peter E. Borkon (212596)
4 Danielle Charles (291237)
715 Hearst Ave., Suite 202
5 Berkeley, CA 94710
Telephone: (510) 725-3000
6
Facsimile: (510) 725-3001
7 Email: reed@hbsslaw.com
peterb@hbsslaw.com
8 daniellec@hbsslaw.com

9 Steve W. Berman
HAGENS BERMAN SOBOL SHAPIRO LLP
10
1918 Eighth Avenue, Suite 3300
11 Seattle, WA 98101
Telephone: (206) 623-7292
12 Facsimile: (206) 623-0594
steve@hbsslaw.com
13
Jason M. Leviton, pro hac vice to be submitted
14 Joel A. Fleming (281264)
Jacob A. Walker (271217)
15 BLOCK & LEVITON LLP
155 Federal Street, Suite 400
16 Boston, MA 02110
Telephone: (617) 398-5600
17 Email: jason@blockesq.com
joel@blockesq.com
18 jake@blockesq.com
19 Attorneys for Plaintiff
20

21

22

23

24

25

26
27

28 APPLICATION FOR TRO - 20
Case No.:
Case 3:17-cv-07095-RS Document 8-2 Filed 12/14/17 Page 1 of 6

1 Reed R. Kathrein (139304)
Peter E. Borkon (212596)
2 HAGENS BERMAN SOBOL SHAPIRO LLP
715 Hearst Avenue, Suite 202
3 Berkeley, CA 94710
Telephone: (510) 725-3000
4 Facsimile: (510) 725-3001
reed@hbsslaw.com
5 peterb@hbsslaw.com

6 Steve W. Berman (admitted Pro Hac Vice)
HAGENS BERMAN SOBOL SHAPIRO LLP
7 1918 8th Avenue, Suite 3300
Seattle, WA 98101
8 Telephone: (206) 623-7292
Facsimile: (206) 623-0594
9 steve@hbsslaw.com

10 Counsel for Plaintiffs and Proposed Lead
Counsel for the Class
11
[Additional counsel appear on signature page.]
12
UNITED STATES DISTRICT COURT
13
NORTHERN DISTRICT OF CALIFORNIA
14
BRUCE MACDONALD, Individually and on Case No. 3:17-cv-07095-RS
15 Behalf of All Others Similarly Situated,
CERTIFICATION REGARDING
16 Plaintiff, NOTICE
17
v.
18
DYNAMIC LEDGER SOLUTIONS, INC., a
19 Delaware corporation, TEZOS
STIFTUNG, a Swiss Foundation,
20 KATHLEEN BREITMAN, an
21 Individual, ARTHUR BREITMAN,
an Individual, TIMOTHY COOK DRAPER, an
22 individual, DRAPER ASSOCIATES, JOHANN
GEVERS, DIEGO PONZ, GUIDO SCHMITZ-
23 KRUMMACHER, BITCOIN SUISSE AG,
NIKLAS NIKOLAJSEN and DOES 1-100,
24
INCLUSIVE,
25
Defendants.
26
27

28
Case 3:17-cv-07095-RS Document 8-2 Filed 12/14/17 Page 2 of 6

1 Where a plaintiff seeks a temporary restraining order without notice, the movant’s attorney

2 must, inter alia, “certif[y] in writing any efforts made to give notice and the reasons why it should
3
not be required.” Fed. R. Civ. Proc. 65(b)(1)(B).
4
ND Cal Civ Local R 65–1(b) further states:
5
“Unless relieved by order of a Judge for good cause shown, on or before
6 the day of an ex parte motion for a temporary restraining order, counsel
applying for the temporary restraining order must deliver notice of such
7
motion to opposing counsel or party.”
8
I, Reed Kathrein, counsel to movant Bruce MacDonald hereby certify as follows:
9
A. Plaintiff Has Made Best Efforts To Give Actual Notice of This Application
10

11 Plaintiff has given notice or attempted to give notice to each of the Defendants of the date and

12 substance of this Application by sending a copy of the complaint and this Application at

13 approximately 3:15 p.m. PST on Wednesday, December 13, 2017 and by following up with a phone
14 call or voicemail to counsel (if known) to each of the Defendants as follows. Each notice sent to
15
Defendants additionally informed the party or counsel of all substantive information known to
16
Plaintiffs regarding this Application, namely: the intention to seek a TRO, the date and approximate
17
time known to Plaintiffs (morning of December 14, 2017), and the nature of the relief to be
18
19 requested. Plaintiffs made extensive efforts to obtain all available contact information for each of the

20 Defendants in the short time frame necessitated by the relief requested by reviewing counsel

21 appearances in the related actions, and publicly available information regarding Defendants and/or
22
their representation by counsel.
23
 DYNAMIC LEDGER SOLUTIONS, INC.: Notice of this Application was sent via
24
email to counsel representing Defendant Dynamic Ledger Solutions, Inc. in the related
25
action as follows:
26
Daniel Louis Sachs
27 COOLEY LLP
1299 Pennsylvania Ave NW
28
CERTIFICATION REGARDING NOTICE - 1
Case No.: 3:17-cv-07095-JSC
Case 3:17-cv-07095-RS Document 8-2 Filed 12/14/17 Page 3 of 6

1 Suite 700
Washington, DC 20004
2 Telephone: (202) 728-7114
Facsimile: (202) 842-7899
3
Email: dsachs@cooley.com
4
Jeffrey Michael Kaban
5 Patrick Edward Gibbs
Samantha Anne Kirby
6 COOLEY LLP
3175 Hanover Street
7
Palo Alto, CA 94304
8 Telephone: (650) 843-5000
Facsimile: (650) 849-7400
9 Email: kabanjm@cooley.com
pgibbs@cooley.com
10 skirby@cooley.com
11
On December 13, 2017, Patrick Gibbs, counsel for Dynamic Ledger Solutions replied by
12
email stating that Dynamic Ledger Solutions “will oppose any application for a temporary
13
restraining order, and we wish to be heard in opposition to any such application.” A copy of Mr.
14
Gibbs’ email is attached hereto as Exhibit A.
15

16  KATHLEEN BREITMAN: Notice of this Application was sent via email, as well as

17 with a follow-up voicemail, to counsel representing Defendant KATHLEEN BREITMAN

18 as follows:

19 Brian E. Klein (258486)
Scott M. Malzahn (229204)
20 BAKER MARQUART LLP
2029 Century Park East, Suite 1600
21 Los Angeles, CA 90067
Telephone: (424) 652-7814
22
Facsimile: (424) 652-7850
23 Email: bklein@bakermarquart.com
smalzahn@bakermarquart.com
24  ARTHUR BREITMAN: Notice of this Application was sent via email, as well as with a
25 follow-up voicemail, to counsel representing Defendant ARTHUR BREITMAN as
26 follows:
27
Brian E. Klein (258486)
28
CERTIFICATION REGARDING NOTICE - 2
Case No.: 3:17-cv-07095-JSC
Case 3:17-cv-07095-RS Document 8-2 Filed 12/14/17 Page 4 of 6

1 Scott M. Malzahn (229204)
BAKER MARQUART LLP
2 2029 Century Park East, Suite 1600
Los Angeles, CA 90067
3
Telephone: (424) 652-7814
4 Facsimile: (424) 652-7850
Email: bklein@bakermarquart.com
5 smalzahn@bakermarquart.com
6  TIMOTHY COOK DRAPER: Notice of this Application was sent via email to all

7 known email addresses of Defendant TIMOTHY COOK DRAPER as follows:

8 plans@draper.vc; timothy@dfj.com; mail@drapervc.com; timothy.draper@msn.com;

9 tim@drapervc.com; tdraper@prosper.com; and tim@prosper.com.

10  DRAPER ASSOCIATES: Notice of this Application was sent via email to all known

11 email addresses of Defendant DRAPER ASSOCIATES as follows:

12 plans@draper.vc; timothy@dfj.com; mail@drapervc.com; timothy.draper@msn.com;

13 tim@drapervc.com; tdraper@prosper.com; and tim@prosper.com.

14  TEZOS STIFTUNG (aka TEZOS FOUNDATION): Notice of this Application was

15 sent via email to all known email addresses and contact information of Defendant TEZOS

16 STIFTUNG as follows:

17 Contact@tezos.ch; support@tezos.ch.

18  JOHANN GEVERS: Notice of this Application was sent via email to all known email

19 addresses and contact information of Defendant JOHANN GEVERS as follows:

20 johann@gevers.net; johann@monetas.net; jgevers@monetas.net;

21 johann.gevers@monetas.net; johanngevers@monetas.net.

22  DIEGO PONZ: Notice of this Application was sent via email to all known email

23 addresses and contact information of Defendant DIEGO PONZ as follows:

24 Contact@tezos.ch; support@tezos.ch

25  GUIDO SCHMITZ-KRUMMACHER: Notice of this Application was sent via email to

26 all known email addresses and contact information of Defendant GUIDO SCHMITZ-

27 KRUMMACHER as follows:

28 guido.schmitz-krummacher@krummacher.com; guido.schmitz-
CERTIFICATION REGARDING NOTICE - 3
Case No.: 3:17-cv-07095-JSC
Case 3:17-cv-07095-RS Document 8-2 Filed 12/14/17 Page 5 of 6

1 krummacher@talentory.com; guido@addcon.nl; guidoschmitzkrummacher@addcon.nl;

2 gschmitzkrummacher@addcon.nl; guidos@addcon.nl;

3 guido.schmitzkrummacher@addcon.nl.

4  BITCOIN SUISSE AG: Notice of this Application was sent via email to all known email
5 addresses and contact information of Defendant BITCOIN SUISSE AG as follows:

6 inquiry@bitcoinsuisse.ch.

7  NIKLAS NIKOLAJSEN: Notice of this Application was sent via email to all known
8 email addresses and means of contact information of Defendant NIKLAS NIKOLAJSEN

9 as follows: inquiry@bitcoinsuisse.ch; via Twitter message at @nikolajsen_btcs; via

10 LinkedIn https://www.linkedin.com/in/niklas-nikolajsen-0a452848/; and via Facebook

11 message https://www.facebook.com/nnikolajsen

12
Aside from Mr. Gibbs (counsel for DLS), no other Defendant or counsel for Defendant has
13
responded or indicated their opposition to this TRO Application.
14

15
B. Notice Should Not Be Required
16
Notwithstanding Plaintiffs’ best efforts (described above) to provide notice to the opposing
17
counsel or parties in this action, good cause exists to relieve Plaintiffs of any duty to provide notice.
18
19 Notice should not be required for all the reasons set forth in the accompanying Application, which

20 are incorporated by reference as though fully set forth herein.1 In particular, it is necessary for this
21 Court to take immediate action without notice to Defendants because:
22
 Given the nature of the cryptocurrency assets held by Defendants, Defendants could, in a
23 matter of minutes, abscond with the entirety of the ICO proceeds by transferring,
converting or selling the assets to unidentifiable and untraceable third parties. This is a
24 very real possibility should Defendants feel that their ill-gotten gains are threatened.
25  Many of the named Defendants are resident in Switzerland and appear to have chosen that
26 location specifically as an (ultimately unsuccessful) means of attempting to evade U.S.

27
1
28 Capitalized terms below have the same meaning as in the Application.
CERTIFICATION REGARDING NOTICE - 4
Case No.: 3:17-cv-07095-JSC
Case 3:17-cv-07095-RS Document 8-2 Filed 12/14/17 Page 6 of 6

1 securities regulations. Plaintiff intends to move expeditiously to effect service but there
will likely be delays in serving some or all of the foreign Defendants. 2
2
 Plaintiff and the putative class cannot afford to wait. The remedy they seek is a rescission
3 of the Bitcoin, Ethereum and other cryptocurrency asserts paid in the Tezos ICO. And
4 those assets are being dissipated already. Defendants Arthur and Kathleen have accused
Defendant Gevers of “self-dealing, self-promotion, and conflicts of interest.” The
5 Breitmans suggested further that Gevers was “enriching” himself through an unjustified
seven-figure “bonus.” Gevers has fired back—accusing the Breitmans of “character
6 assassination,” “misleading statements and outright lies” and accusing his fellow board
members, Ponz, and Schmitz-Krummacher of an “illegal coup.” The Foundation appears
7
to have fired its auditors and has provided no explanation why.
8
 Moreover, Defendants have also stated their intent to spend at least $50 million on
9 “investments” into Tezos-related companies, and to spend additional Tezos foundation
assets obtained from the ICO on personal legal fees related to this and other actions.
10
 Most critically: two days ago—December 12, 2017—Reuters reported that Defendant
11
Schmitz-Krummacher had resigned from the three-member board of the Tezos
12 Foundation—the entity that currently holds the investor funds at issue. Schmitz-
Krummacher’s replacement will be handpicked by Defendant Gevers. By choosing a
13 compliant director, Gevers can gain effective majority control of the Tezos Foundation’s
board—creating a significant risk to the assets that rightfully belong to Plaintiff and other
14 class members.
15 Accordingly, for the reasons outlined above, notice should not be required. Nonetheless,
16
Plaintiffs have made every possible effort to provide all the notice feasible without unnecessarily
17
delaying the request for relief. Any further attempts to give notice to Defendants will inevitably be
18
objected to as insufficient, meanwhile Defendants will have more time to engage in the exact same
19

20 looting and dissipation of ICO proceeds complained of in the accompanying TRO Application.

21 Without immediate judicial intervention, Defendants may completely consume or dissipate the

22 illegally obtained ICO proceeds, leaving Plaintiff and the Class with no remedy.
23

24
Dated: December 14, 2017 /s/ Reed Kathrein
25 Reed Kathrein

26 2
Pursuant to Rules 4(f)(3) and 4(h)(2) of the Federal Rules of Civil Procedure, Plaintiff intends
27 to seek leave of Court to serve foreign defendants through electronic service rather than the Hague
Convention process. See generally Rio Properties, Inc. v. Rio Int'l Interlink, 284 F.3d 1007 (9th Cir.
28 2002).”
CERTIFICATION REGARDING NOTICE - 5
Case No.: 3:17-cv-07095-JSC
Case 3:17-cv-07095-RS Document 8-3 Filed 12/14/17 Page 1 of 4

Exhibit A
Case 3:17-cv-07095-RS Document 8-3 Filed 12/14/17 Page 2 of 4

From: Gibbs, Patrick
To: "Joel Fleming"; Sachs, Daniel; Kaban, Jeff; Kirby, Samantha; bklein@bakermarquart.com;
smalzahn@bakermarquart.com; plans@draper.vc; timothy@dfj.com; mail@drapervc.com;
timothy.draper@msn.com; tim@drapervc.com; tdraper@prosper.com; tim@prosper.com; contact@tezos.ch;
support@tezos.ch; johann@gevers.net; johann@monetas.net; jgevers@monetas.net;
johann.gevers@monetas.net; johanngevers@monetas.net; guido.schmitz-krummacher@krummacher.com;
guido.schmitz-krummacher@talentory.com; guido@addcon.nl; guidoschmitzkrummacher@addcon.nl;
gschmitzkrummacher@addcon.nl; guidos@addcon.nl; guido.schmitzkrummacher@addcon.nl;
inquiry@bitcoinsuisse.ch
Cc: Reed Kathrein; Danielle Charles; Peter Borkon; Lisa Lin; Brian Miller; Jason Leviton; Jake Walker
Subject: RE: Tezos - Notice of Application for Temporary Restraining Order
Date: Wednesday, December 13, 2017 5:07:21 PM

Joel:
 
I represent Dynamic Ledger Solutions, Inc.  We will oppose any application for a temporary
restraining order, and we wish to be heard in opposition to any such application. 
 
In the meantime, we object to this process on a number of grounds, including (at least) the
following: 
 
· Your email below does not come close to providing adequate notice of any TRO proceeding
tomorrow.  It does not state the time, the judge, the courtroom, or even the courthouse
where you intend to appear tomorrow. 
· Even setting aside the lack of that basic information, we are not aware of any plausible basis
for seeking this type of emergency relief on such short notice, or on an ex parte basis. 
· As far as we can tell from the docket, your complaint has not even been properly filed, and
it certainly has not been served. 
· Moreover, as far as we can tell from the docket, you have not given the court adequate
notice of a related case that is already pending in the Northern District of California.  I’m
quite sure you are aware of that case, as your ex parte application was no doubt prompted
by the fact that the plaintiff in that case has filed a motion seeking essentially the same
relief as your ex parte application, albeit on regular notice and a motion for a preliminary
injunction. 
 
If you proceed tomorrow on the basis of this “notice” and your defective filing, we will seek
sanctions for your abuse of the ex parte application process. 
 
Patrick E. Gibbs
Cooley LLP
3175 Hanover Street
Palo Alto, CA  94304-1130
+1 650 843 5535 office
+1 650 849 7400 fax
+1 650 248 6412 mobile
pgibbs@cooley.com
 
www.cooley.com
 
Cooley is one of Fortune’s 100 Best Companies to Work For

Cooley GO > Start and build your business
Case 3:17-cv-07095-RS Document 8-3 Filed 12/14/17 Page 3 of 4

 
From: Joel Fleming [mailto:joel@blockesq.com]
Sent: Wednesday, December 13, 2017 3:15 PM
To: Sachs, Daniel <dsachs@cooley.com>; Kaban, Jeff <jkaban@cooley.com>; Gibbs, Patrick
<pgibbs@cooley.com>; Kirby, Samantha <skirby@cooley.com>; bklein@bakermarquart.com;
smalzahn@bakermarquart.com; plans@draper.vc; timothy@dfj.com; mail@drapervc.com;
timothy.draper@msn.com; tim@drapervc.com; tdraper@prosper.com; tim@prosper.com;
contact@tezos.ch; support@tezos.ch; johann@gevers.net; johann@monetas.net;
jgevers@monetas.net; johann.gevers@monetas.net; johanngevers@monetas.net; guido.schmitz-
krummacher@krummacher.com; guido.schmitz-krummacher@talentory.com; guido@addcon.nl;
guidoschmitzkrummacher@addcon.nl; gschmitzkrummacher@addcon.nl; guidos@addcon.nl;
guido.schmitzkrummacher@addcon.nl; inquiry@bitcoinsuisse.ch
Cc: Reed Kathrein <reed@hbsslaw.com>; Danielle Charles <daniellec@hbsslaw.com>; Peter Borkon
<peterb@hbsslaw.com>; Lisa Lin <LisaL@hbsslaw.com>; Brian Miller <brianm@hbsslaw.com>;
Jason Leviton <jason@blockesq.com>; Jake Walker <jake@blockesq.com>
Subject: Tezos - Notice of Application for Temporary Restraining Order
 
PLEASE TAKE NOTICE that Plaintiff Bruce MacDonald has filed the attached
complaint in the United States District Court for the Northern District of
California and has named you/your client(s) as Defendants. Tomorrow
morning, Mr. MacDonald will be filing an ex parte application for a temporary
restraining order (“TRO”) against all Defendants.
 
The TRO application will be substantially similar to the application attached here and will
seek an order, substantially in the form of the proposed order attached here,  freezing all
assets of Defendants collected via or derived from the Tezos Initial Coin Offering (the
“Tezos ICO” and the “ICO Proceeds,” respectively) and restraining and enjoining
Defendants from selling, transferring, converting, or otherwise disposing of any of the ICO
Proceeds or taking any action to authorize anyone else to sell, transfer, convert, or
otherwise dispose of any of the ICO Proceeds until Plaintiff has had sufficient time to
conduct appropriate discovery in preparation for a preliminary injunction hearing and the
Court issues a ruling on an Order to Show Cause Why a Preliminary Injunction Should Not
Issue.
 
If you oppose the TRO, please let us know promptly so that we may include reference to
your opposition in tomorrow morning’s filing.  
 
Sincerely,
 
 
 
-- 
Joel Fleming
Block & Leviton LLP
155 Federal Street, Suite 400
Boston, MA 02110
(t) 617.398.5615
(f) 617.507.6020
Case 3:17-cv-07095-RS Document 8-3 Filed 12/14/17 Page 4 of 4

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Case 3:17-cv-07095-RS Document 8-4 Filed 12/14/17 Page 1 of 4

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UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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12 BRUCE MACDONALD, Individually and on Case No. 3:17-cv-07095-RS
Behalf of All Others Similarly Situated,
13 [PROPOSED] ORDER GRANTING
14 Plaintiff, PLAINTIFF’S EX PARTE
APPLICATION FOR TEMPORARY
15 v. RESTRAINING ORDER AND
ORDER TO SHOW CAUSE WHY A
16 DYNAMIC LEDGER SOLUTIONS, INC., a PRELIMINARY INJUNCTION
Delaware corporation, TEZOS SHOULD NOT ISSUE
17 STIFTUNG, a Swiss Foundation,
18 KATHLEEN BREITMAN, an
Individual, ARTHUR BREITMAN,
19 an Individual, TIMOTHY COOK DRAPER, an
individual, DRAPER ASSOCIATES, JOHANN
20 GEVERS, DIEGO PONZ, GUIDO SCHMITZ-
KRUMMACHER, BITCOIN SUISSE AG,
21 NIKLAS NIKOLAJSEN and DOES 1-100,
22 INCLUSIVE,

23 Defendants.

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010721-11 1004839 V1
Case 3:17-cv-07095-RS Document 8-4 Filed 12/14/17 Page 2 of 4

1 This matter comes before the Court on the application of Plaintiff Bruce MacDonald (“Plaintiff”)
2 for a temporary restraining order (the “Application”). Plaintiff asks the Court to enter an order
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freezing all assets of Defendants 1 collected via or derived from the Tezos Initial Coin Offering (the
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“Tezos ICO” and the “ICO Proceeds,” respectively) and restraining and enjoining Defendants from
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selling, transferring, converting, encumbering, or otherwise disposing of any of the ICO Proceeds or
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7 taking any action to authorize anyone else to sell, transfer, convert, encumber, or otherwise dispose of

8 any of the ICO Proceeds until Plaintiff has had sufficient time to conduct appropriate discovery in

9 preparation for a preliminary injunction hearing and this Court issues a ruling on its Order to Show
10 Cause Why a Preliminary Injunction Should Not Issue.
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Having reviewed the materials submitted and being fully advised, the Court GRANTS Plaintiff’s
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application as follows:
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1. The Court GRANTS the Application, finding that Plaintiff has shown (1) a likelihood
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15 of success on the merits; (2) a likelihood of irreparable harm in the absence of preliminary relief,

16 (3) that the balance of equities tips in Plaintiff’s favor, and (4) an injunction is in the public interest.

17 2. This Order is granted pursuant to Federal Rule of Civil Procedure 65 and the Court’s
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general equitable power.
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3. The Court hereby FREEZES all assets of Defendants that are ICO Proceeds and
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RESTRAINS AND ENJOINS Defendants and any persons or entities acting on their behalf from
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selling, transferring, converting, encumbering, or otherwise disposing of any of the ICO Proceeds or
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23 taking any action to authorize anyone else to sell, transfer, convert, encumber or otherwise dispose of

24 any of the ICO Proceeds.
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1
26 Defendants are Dynamic Ledger Solutions, Inc. (“DLS”), Tezos Stiftung (the “Tezos
Foundation”), Kathleen Breitman, Arthur Breitman, Timothy Cook Draper, Draper Associates,
27 Johann Gevers, Diego Ponz, Guido Schmitz-Krummacher, Bitcoin Suisse AG, and Niklas
Nikolajsen.
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[PROPOSED] ORDER GRANTING PLAINTIFFS’ EX-PARTE APPLICATION FOR TRO 1
CASE NO. 17-CV-07095-RS
010721-11 1004839 V1
Case 3:17-cv-07095-RS Document 8-4 Filed 12/14/17 Page 3 of 4

1 4. This Order shall take effect immediately and shall remain in effect pending the Show
2 Cause Hearing in Paragraph 6 or further order of this Court. Defendants may apply to the Court for
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dissolution or modification of this Order on three court days’ notice to Plaintiff.
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5. Plaintiff is directed to file proof of bond in the amount of $1,000 no later than 5:00 p.m.
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on __________. The bond shall serve as security for all claims with respect to this Order.
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7 6. Defendants are ordered to appear in the United States District Court for the Northern

8 District of California, San Francisco Courthouse, Courtroom 3 – 17th Floor, 450 Golden Gate Avenue,

9 San Francisco, CA on _________ at _________ _.m. Pacific Time and show cause why the Court
10 should not enter a preliminary injunction imposing the terms set forth in Paragraph 3 above pending
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trial in this action.
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7. Defendants shall serve and file any papers in opposition to the continued restraint not
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later than ________ _.m. Pacific Time on _____________. Plaintiff shall file any reply not later than
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15 ________ _.m. Pacific Time on _____________.

16 8. Plaintiff shall serve all Defendants with this Order no later than ____________.

17 If service on any Defendant is impossible within that timeframe, notwithstanding good-faith efforts,
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Plaintiff shall make best efforts to ensure constructive notice to such Defendant(s) and shall file a
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motion for leave to attempt substituted service by electronic or other means as soon as possible.
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22 DATED: ___________________________
The Hon. Richard Seeborg
23 United States District Judge

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[PROPOSED] ORDER GRANTING PLAINTIFFS’ EX-PARTE APPLICATION FOR TRO 2
CASE NO. 17-CV-07095-RS
010721-11 1004839 V1
Case 3:17-cv-07095-RS Document 8-4 Filed 12/14/17 Page 4 of 4

1 Presented by:
2 DATED: December 14, 2017 HAGENS BERMAN SOBOL SHAPIRO LLP
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By: /s/ Reed R. Kathrein
4 Reed R. Kathrein (139304)
Peter E. Borkon (212596)
5 Danielle Charles (291237)
715 Hearst Ave., Suite 202
6 Berkeley, CA 94710
7 Telephone: (510) 725-3000
Facsimile: (510) 725-3001
8 Email: reed@hbsslaw.com
peterb@hbsslaw.com
9 daniellec@hbsslaw.com
10 Steve W. Berman
11 HAGENS BERMAN SOBOL SHAPIRO LLP
1918 Eighth Avenue, Suite 3300
12 Seattle, WA 98101
Telephone: (206) 623-7292
13 Facsimile: (206) 623-0594
Email: steve@hbsslaw.com
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Jason M. Leviton (pro hac vice to be submitted)
15 Joel A. Fleming (281264)
Jacob A. Walker (271217)
16 BLOCK & LEVITON LLP
155 Federal Street, Suite 400
17 Boston, MA 02110
Telephone: (617) 398-5600
18 Facsimile: (617) 507-6020
Email: jason@blockesq.com
19 joel@blockesq.com
jake@blockesq.com
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21 Attorneys for Plaintiffs

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[PROPOSED] ORDER GRANTING PLAINTIFFS’ EX-PARTE APPLICATION FOR TRO 3
CASE NO. 17-CV-07095-RS
010721-11 1004839 V1