Who will sue?
The companies that created the cryptocurrency, the exchanges that facilitated its sale, and the individuals who promoted it have all been sued.
Kyle Roche, who represents holders of cryptocurrency in numerous lawsuits, said that US claims on cryptocurrency often involve alleged violations of federal securities or commodities laws, which prohibit fraud and manipulation and require product and operator registration with US authorities.
The latest lawsuit was filed against Terraform Labs, the company behind Terra USD, over the recent collapse of the stablecoin.
A cryptocurrency investor filed a lawsuit against the Seoul-based company and its CEO Do Kwon on June 17, alleging that they failed to register the company’s digital assets as securities and that they partnered with several venture capital funds backing Terra USD to defraud investors.
A Terraform Labs spokesperson called the allegations unfounded.
Tether, which is behind the world’s largest stablecoin, has been accused in a lawsuit in New York of manipulating the cryptocurrency markets. Ripple, whose founders created the token XRP, has been sued in California alleging that it sold unregistered securities.
Both lawsuits escaped rejection requests.
A spokesperson said Ripple is challenging the allegations and will defend itself against them. Tether did not respond to a request for comment.
Cryptocurrency exchanges have been another target for investors looking to recoup their losses.
Binance US was sued on June 13 by investors alleging that it had wrongly marketed TerraUSD as a safe asset prior to its collapse. 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 publicly promoted cryptocurrency. A Los Angeles lawsuit alleges reality TV star Kim Kardashian and boxing legend Floyd Mayweather Jr. Involved in the pump and dump of cryptocurrency. Kardashian and Mayweather’s representatives did not respond to requests for comment.
A wave of lawsuits against exchanges in 2020 allegedly fueling an illegal crypto boom has largely backfired, after judges found that some of the lawsuits were too late or had little to do with the United States.
Timing should not be an issue in the new lawsuits, but crypto holders looking to take foreign firms to US courts may still face hurdles.
Token holders won a hypothetical ruling in New York against the Singapore-based KuCoin exchange, but dropped the case after a court in Singapore refused to allow the company to provide information to enforce the ruling.
KuCoin did not respond to a request for comment.
Another potential hurdle for investors who make claims under securities or commodity laws is to prove that their tokens meet the legal definition of that asset. Some courts have ruled that some cryptocurrencies meet this definition, but the problem remains unresolved.
Cryptocurrency holders may face additional hurdles when chasing exchanges. In the lawsuit against Coinbase, the exchange argued that it was not a party to the transactions, and that private litigants could not enforce the registration requirements.
Did crypto owners win money in court?
While several crypto-related lawsuits are still pending, the SEC has recovered some funds through settlements by investors in a few digital assets.
But even after settling, investors can face long waiting times and still end up with less than they deposited.
Last year, blockchain company Block.one agreed to pay $27.5 million to settle a lawsuit from holders of tokens who allege it violated securities law.
More than 100 token holders have filed claims worth more than $75.7 million, according to court records. The settlement has not yet received final approval.
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