Cryptocurrency lawyers are betting big on class action lawsuits as market segments

Cryptocurrency lawyers are betting big on class action lawsuits as market segments

As the Biden administration intensifies its scrutiny of the crypto industry, a few small litigation stores are piling up against crypto exchanges and digital token issuers, pursuing theories that could determine how legacy laws apply to the emerging field.

Led by boutique firm partners, attorneys have filed 58 securities class actions against crypto firms since 2016, according to the Report From the consulting firm Cornerstone Research and Stanford Law School.

It fell more than a third in the past two years, and the pace picked up in the first six months of 2022, when Market value It fell by $2 trillion before stabilizing.

Several of the complaints — targeting entities including Coinbase and Binance, two of the world’s largest crypto exchanges — allege that exchanges, coin issuers and other companies are evading disclosure requirements imposed by federal securities laws and that they should be in trouble for loss-making investors.

“There was a crash and a lot of abuse and abuse started to emerge,” said John Jasnoch, partner at Scott & Scott, which is suing seven proposed crypto-class lawsuits.

It remains unclear whether the litigation will break any widespread legal basis. Ultimately, most of the series of crypto-related class actions that two companies filed in April 2020 faded due to statute of limitations and court issues.

“In a way, the place has the ‘more money, more problems’ thing going on, being mature enough that it can get attention from class action attorneys, whether that interest is warranted or not,” said Jason Gottlieb, who is Morrison Cohen. An attorney maintains a crypto litigation tracker and his company represents defendants in two class action lawsuits.

“It is very easy to copy and paste a complaint from one company to another,” he said.

The lawsuits that have escaped challenges so far include a case that Roche Freedman has drawn up against crypto exchange Bitfinex and its subsidiary Tether, the company behind the Tether stablecoin. The lawsuit accuses the companies of defrauding investors and causing billions of dollars in losses.

In another case, in early September a California judge initially denied Dfinity’s application for blockchain platform Dfinity to dismiss a proposed securities class action suit brought by Scott & Scott.

Meanwhile, a federal judge in New York is considering whether to green-light a lawsuit brought by Selendy Gay and Silver Golub. The lawsuit alleges that Coinbase facilitated transactions of 79 digital tokens that it asserts are unregistered securities.

If the lawsuit succeeds, Coinbase could potentially be offered billions of dollars in damages. It would also undermine the company’s position that no asset traded on its platform is a security, or “investment contract” in which one can expect profits from the efforts of others.

In a motion to dismiss the complaint, Skadden lawyers representing Coinbase described Selendy’s recent action of trying to “manufacture” securities laws.

But James Cox, a Duke University law professor who reviewed the complaint about Bloomberg Law, said the main claim — that Coinbase failed to register as a broker-dealer or stock exchange — “has some really strong stems.”

“The fact that there are dozens of different currencies is not going to prevent a class from getting a degree,” Cox said.

“Cop on the Rhythm”

The spread of private litigation comes as SEC President Gary Gensler pledges The agency will be a “vanguard policeman,” protecting investors in the digital asset space.

Agency took 20 enforcement actions against crypto firms in 2021 Gensler confirmed in April of that year 80% over alleged sale of unregistered securities, Cornerstone have found.

The Securities and Exchange Commission (SEC) made waves in July by taking an insider trading action against a former Coinbase employee that identified several tokens traded on the platform as securities.

The Biden administration, last week, in a series of reports, Call Federal regulators to double down on illegal practices in the industry. This aggressive push will likely provide more ammunition for class action attorneys, say corporate litigants.

However, most litigants are still waiting for the courts to resolve foundational questions, such as whether certain cryptocurrencies are similar to traditional stocks and bonds and must comply with securities disclosure requirements.

Unless new legislation is passed by Congress — a bipartisan regulation bill now making its way through the Senate — the decisions could have significant weight not only for the industry, but how both the SEC and the union of plaintiffs move on the issue in the coming years .

Gensler said his agency has power over “crypto security tokens” and repeatedly pushes companies to comply with securities laws, claiming that most tokens are securities.

Industry advocates have argued that the space needs a clearer regulatory framework. Exchanges like Coinbase have repeatedly denied offering securities on their platforms.

Kayvan Sadeghi of Jenner & Block said that the law firms that do business with these firms are not among the well-known plaintiffs shops that often represent a suggested class in traditional securities actions, in part because of the lack of institutional investors in cryptocurrencies. Defense attorney.

This has left the door open for startups to seize leadership positions in some of the biggest cases.

Other small stores make big splashes outside the realm of stock.

Gerstein Harrow, a two-person civil rights firm that launched in Los Angeles in 2021, has formed a crypto consumer protection practice. The company has filed two lawsuits targeting decentralized finance companies, or organizations that remove banks and other third parties from financial transactions.

Lawsuits target crypto company PoolTogether for allegedly running an illegal lottery and decentralized financial platform bZx for alleged negligence that caused the theft of $55 million from its platform. (Both denied the allegations and moved to reject them.)

“We took the time to study the technology and came to the point [digital asset operators] “They were operating in an area where they thought they were free of US legal regulations,” said co-founder Charlie Gerstein. Second, we noticed that there was a very large amount of money in circulation. This presented a clear financial opportunity.”

Less popular players

Companies like Selendy say it acts as a “complementary” force for SEC examiners and other regulators who implement broader scrutiny.

Launched in 2018 by 10 expats from Quinn Emanuel, the company splits its time between plaintiff and defensive matters.

Philip Selinde and Jordan Goldstein, who both worked on the company’s crypto work, helped the Federal Housing Finance Agency earn more than $25 billion in payments from Wall Street banks in the wake of the mortgage-backed security crisis more than a decade ago.

Goldstein said he sees similarities between this work and its new focus on alleged cryptocurrency fraud.

“We saw an opportunity to start a litigation shop focused on cutting-edge matters that would not only benefit our clients, but advance the public interest wherever possible,” he said. “The cryptocurrency market appears to present an opportunity to benefit investors through the legal system.”

Launched in 2019 by lawyers from prominent litigation store Boies Schiller, Roche Freedman has been the most active crypto crowdfunding firm, having filed more than a dozen lawsuits and served as lead counsel in many of them.

Some of this work has come under intense examination Amid accusations – fueled by the leaking of confidential recordings in August – that co-founder Kyle Roche worked with crypto firm Ava Labs to target competitors through litigation. Roche denied the allegation but has since left the company’s class action practice and withdrew from various cases, according to court records.

Meanwhile, the company is struggling to remain as a lead advisor in its action against Bitfinex and Tether.

The past two years have shown that the industry is also investing in the legal force to fight these actions, suggesting that many issues, both public and private, have a long way to go to resolution.

Crypto company Ripple Labs pushed back hard against the SEC in response to a 2020 executive action alleging that the XRP token is an unregistered digital asset. The case is one of the main ongoing issues that can help define the broader crypto-related litigation and regulatory landscape.

Despite some recent turmoil, Wall Street showed a more attention In crypto this year, creating a double screen of increased litigation involving an industry that is still pushing hard to become more mainstream. And while deflation looked flat during the summer, sharp losses from the peak mean numbers for the crypto-class workspace will become even more crowded.

Carol Goforth, a law professor at the University of Arkansas, said there hasn’t been much interest from crypto plaintiffs’ firms “as long as the market is up and up.” “Now there are pretenders coming out of the woodwork and theories coming out of the market.”

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