The fall in cryptocurrency prices and the collapse of TerraUSD stablecoin have led some investors to try to make up for their losses by going to court.
How have cryptocurrency litigation progressed so far and what challenges can investors face?
Who have been sued?
According to Reuters, so far the companies that created the cryptocurrencies, the exchanges that facilitated their sale and the people who promoted them have been sued.
Kyle Roche, who represents cryptocurrency holders in several lawsuits, said US lawsuits over cryptocurrencies often involve lawsuits for violations federal securities or commodity laws that prohibit manipulation and require products and operators to be registered with the US authorities.
The latest lawsuit was filed against Terraform Labs, the company behind Terra USD, in connection with the recent collapse of stablecoin.
A cryptocurrency investor sued the Seoul-based company and its CEO Do Kwon on June 17, claiming that they did not register the company’s digital assets as securities and that they partnered with various venture capitalists backing Terra USD to defraud them. investors. A Terraform Labs spokesman called the allegations baseless.
Tether, which is behind the largest stablecoin in the world, has been accused of manipulating cryptocurrency markets in a lawsuit in New York. Ripple, whose founders created the XRP token, has also been sued in California for allegedly selling unsigned securities. Neither lawsuit has been dismissed.
A spokesman said Ripple was disputing the allegations and would take action against them. Tether did not respond to a request for comment.
Cryptocurrency exchanges have been another target for investors seeking to recover losses.
Binance US was sued on June 13 by investors who allegedly falsely promoted TerraUSD as a safe-haven asset before it collapsed. And in March, investors accused Coinbase of selling 79 digital assets as unregistered securities. Binance and Coinbase have denied the allegations.
Investors are also suing celebrities who have publicly advertised the cryptocurrency. A lawsuit filed in Los Angeles claims that reality TV star Kim Kardashian and boxing legend Floyd Mayweather Jr. participated in a “pump and dump” fraud (involving artificially inflating the price of a good through false and misleading positive statements in order to sell the good at a higher price) with cryptocurrencies. Representatives of Kardashian and Mayweather also did not respond to requests for comment.
Legal precedent
A wave of lawsuits filed in 2020 against exchanges claiming to have fueled an illegal digital currency explosion has largely failed, with judges ruling that some of the lawsuits were filed too late or had little to do with the United States.
Time should not be an issue for newer lawsuits, but holders of cryptocurrencies seeking to sue offshore companies in US court could still face several hurdles.
Digital currency holders won a New York-based lawsuit against the Singapore-based KuCoin exchange, but dropped the case after a Singapore court did not oblige the company to take action to enforce the ruling. KuCoin did not respond to a request for comment.
Another potential hurdle for investors will be to show that the digital currencies they hold meet the legal definition of securities or commodities under the laws they invoke to seek redress. Some courts have ruled that some cryptocurrencies may fall into this category, but the issue remains unclear.
Holders of cryptocurrencies may face additional obstacles when suing exchanges. In the lawsuit against Coinbase, the exchange claimed, among other things, that it was not part of the transactions.
Were there any legal successes for cryptocurrency holders?
While many cryptocurrency lawsuits are pending, the US Securities and Exchange Commission has recovered some funds for investors through settlements.
But even after a settlement, investors may face high expectations and end up with less money than they paid.
Last year, blockchain company Block.one agreed to pay $ 27.5 million to settle a lawsuit against digital currency holders for allegedly violating securities law.
More than 100 holders filed claims worth more than $ 75.7 million, according to court records. The settlement has not yet received final approval.
Source: Capital
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