Andreessen Horowitz, an affiliate of Bain Capital, and several other venture capital firms have petitioned a California federal judge to reevaluate his decision not to dismiss a proposed class action. The lawsuit alleges they assisted a decentralized crypto organization in selling unregistered securities. They argue that the plaintiffs previously informed the court that they no longer intend to pursue what are known as "direct liability" claims against the firms.

In December 2022, two individual investors filed a lawsuit asserting that they had acquired unregistered securities from an entity known as the Compound Decentralized Autonomous Organization (DAO). They claim that this entity, allegedly funded by the venture capital firm defendants, sold them these securities. In September, U.S. District Judge William H. Orrick rejected the firms' motion to dismiss the lawsuit, citing a failure to demonstrate that they were not actively involved in promoting the sale of the DAO's assets.

Five investment firms, including the venture capital division of private equity giant Bain Capital, and investment firms Polychain Alchemy LLC, AH Capital Management LLC, Paradigm Operations LP, and Gauntlet Networks Inc., have filed motions on Friday and Monday, contending that since the investors have abandoned their direct liability claims, the court should revisit its decision.

"Courts cannot consider claims that are no longer extant, and thus seeks reconsideration of the portion of the order finding that each of the Partner Defendants are liable under a direct theory," stated Gauntlet in its motion for reconsideration on Monday.

In August, the investors responded to the defendants' motion to dismiss, stating that they "do not presently allege that the partner defendants are directly liable" under Section 12 of the Securities Act. Instead, the investors argue that the firms are liable because the Compound DAO is liable under Section 12. As the DAO is a general partnership without limited liability protections, the partner defendants are responsible for its liabilities, according to the investors.

The venture capital firms, collectively referred to as the partner defendants, argued in their motions for reconsideration that the court's decision to not dismiss the lawsuit was based on the incorrect assumption that the abandoned claims had been revived. Even taking into account the abandoned theory of liability, the partner defendants are not liable, they contend.

The partner defendants had initially sought to dismiss the investors' amended complaint in May. They contended that the investors failed to identify specific acts in which the partner defendants had solicited investments within the year before the complaint was filed in December 2022. Judge Orrick, however, ruled that the investors' claims were appropriately targeted and not time-barred.

Representatives for the involved parties did not respond to requests for comment as of Tuesday.

The investors are represented by Jamie Crooks and Michael Dallas Lieberman of Fairmark Partners LLP, and Jason Seth Harrow of Gerstein Harrow LLP.

Gauntlet is represented by Michael A. Mix, Edward P. Gilbert, Vani Upadhyaya, and Jason P. Gottlieb of Morrison Cohen LLP, and Ellen London of London & Stout PC.

AH Capital is represented by Matthew Rawlinson, Benjamin Naftalis, Douglas Kent Yatter, Morgan Edwin Whitworth, and Susan E. Engel of Latham & Watkins LLP.

Polychain is represented by Jennifer Kennedy Park, Jared Mitchell Gerber, Roger Allen Cooper, and Samuel Levander of Cleary Gottlieb Steen & Hamilton LLP.

Bain Capital Ventures is represented by Kayvan B. Sadeghi, Benjamin T. Hand, and Benjamin Thorman Halbig of Jenner & Block LLP.

Paradigm is represented by Peter Bradley Morrison, Alexander C. Drylewski, and Zachary Marc Faigen of Skadden Arps Slate Meagher and Flom LLP.

The case is Houghton et al. v. Leshner et al., case number 3:22-cv-07781, in the U.S. District Court for the Northern District of California.