Amid its blockchain and cryptocurrency pivot, cloud-based content delivery network Xunlei has been hit by two class action suits alleging it distributed false information that materially affected its stock price.

According to filings with the New York Southern District court on Jan. 18 and Jan. 24, the lawsuits against Xunlei, its CEO Chen Lei, CFO Eric Zhou and Zhou's predecessor Wu Tao, are being brought by investors who purchased Xunlei stock from Oct. 10, 2017 to Jan. 11, 2018.

The filings state that during that period, Xunlei announced its shift into exploring blockchain technology, and subsequently launched a blockchain-based token to facilitate its cloud services.

The plaintiffs allege that the company, while knowingly participating in unlawful initial coin offerings, also issued a series of false statements about the legitimacy of this activity, which led to a material impact on its stock price. As such, the plaintiffs are seeking remedy through legal action.

Xunlei, based in China and listed on the NASDAQ exchange, was one of the first publicly traded companies that saw its stock price rise then plunge amid a business pivot into blockchain technology in late 2017.

Yet, the latest legal cases perhaps also mark the first time investors have teamed up to bring charges over questionable moves by public companies that have moved or pivoted operations into blockchain and cryptocurrency services.

According to the court documents, the cases stem from the initial announcement on Oct. 10, 2017, when Xunlei said it would launch its own blockchain-based cryptocurrency dubbed OneCoin, also known as Wanke Coin, which was later renamed to Lianke, or LinkToken in English.

According to announcements at the time, Wanke Coin was issued as a reward for Xunlei's OneCloud users who were willing to share their idle network bandwidth on its platform. In order to receive this reward, users need to purchase an item of hardware called OneThing Cloud from Xunlei to be able to share their cloud storage and network bandwidth.

The firm doubled down on its commitment to its blockchain pivot in an earnings release in November.

"Xunlei is transforming itself from a traditional internet service provider of membership subscription to a growth-oriented company developing innovative cloud computing products and exploring emerging blockchain technology," Li was quoted as saying in the statement.

Following the announcement, Xunlei's stock price surged from around $4 per share in October to as high as $25 in November, which was followed by major declines that triggered the plaintiffs' allegations.

But what perhaps sparked the controversy to begin with was the timing and nature of the blockchain-based issuance, which arrived just a month after China's central bank put the notable ban on domestic initial coin offerings.

Amid challenges over Xunlei's motivation, Chen has stated publicly that its Wanke token is only for utility purpose and not allowed for trading, thus it was not conducting an initial coin offering, claiming the company had been abiding by Chinese law.

However, the plaintiffs allege that the statement is false and that Wanke Coin has the substance of an ICO while under the disguise of a business pivot, since the company requires users to purchase hardware to start receiving token rewards.

The court document further cited a notable announcement by China's National Internet Finance Association, which specifically pointed out on Jan. 11 that Xunlei's model is bypassing the ICO regulation through a disguise called an "initial miner offering."

"In the case of Lianke issued by Xunlei, for example, the issuing company in effect substitutes Lianke for the duty to pay back project contributors with legal tender, making it essentially a financing activity and a form of disguised ICO. In addition, with frequent promotional activities and publishing of trading tutorials, Xunlei has lured many citizens without sound discernment into IMO activities," NIFA noted at the time.

Although the NIFA is a self-regulatory association, not a regulatory agency, it was launched by the People's Bank of China and authorized by the State Council. As such, the plaintiffs allege that it was the company's false statements about its unlawful activity that had drawn close scrutiny from regulators that led to a 27 percent slump in Xunlei's stock price from $22.9 upon opening to $16.27 on Jan. 12.

The two court filings are shown below:

Li etc v.s. Xunlei by CoinDesk on Scribd

DOOKERAN Etc v.s. Xunlei by CoinDesk on Scribd

Court gavel image via Shutterstock