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Crypto Class Actions on Rise Amid Increased Investor, Regulatory Scrutiny

By Lance A. Harke
This marks the first time a jury has been asked to decide whether cryptocurrencies are subject to securities laws.
This marks the first time a jury has been asked to decide whether cryptocurrencies are subject to securities laws.

Are cryptocurrencies securities that must be registered with the SEC?

Amid surging popularity and increased regulatory interest, virtual or cryptocurrency is facing a new legal challenge – class-action lawsuits – as investors and their lawyers target this emerging asset class.

In April 2020, lawyers representing investors filed nearly a dozen class-action lawsuits against major cryptocurrency companies in the Southern District of New York, alleging that these companies defrauded investors by selling unlawful securities via digital tokens.  Defendants include big names in the crypto space such as Binance, Block.one, Bitmex, Tron, and others.

In a recent major development arising from these suits, SDNY Judge Lewis A. Kaplan put the brakes on a proposed $27.5 million class action settlement against Block.one and its sale of EOS tokens, a proprietary digital asset. The Court ordered plaintiffs’ counsel to provide more information on the composition of the class, the proposed attorney’s fee of $5.5 million, and more details regarding claims administration and the claims verification process.

Meanwhile, the underlying basis of these suits – that cryptocurrencies are securities that must be registered with the SEC – faced a blow last week as a federal jury evaluating class claims in Connecticut found that four cryptocurrency products, including one called Paycoin, are not securities subject to SEC regulations or laws.  This marks the first time a jury has been asked to decide whether cryptocurrencies are subject to securities laws, though regulators and judges may well reach different conclusions as additional fact scenarios arise in the future.

UWWM will continue to monitor developments in this and other class and mass tort actions, and will publish additional bulletins and updates for the benefit of its clients and colleagues.

The select mediators and arbitrators at UWWM’s Center for National Class and Mass Actions have decades of specific experience in class and mass actions and are uniquely qualified to assist you in resolving these legal disputes.  For further information and scheduling, please visit our website.


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