By David Potter
A U.S. law firm took sweeping action against some of the cryptocurrency industry’s most significant projects earlier this month.
“The cryptocurrency industry had its own ‘Red Wedding’ at federal court in Manhattan on April 3 when 11 class action complaints alleging the sale of unregistered securities were filed against 42 defendants in the [British Virgin Islands], Canada, Cayman Islands, China, Estonia, Hong Kong, Israel, Japan, Malta, Seychelles, Singapore, South Africa, Switzerland, Taiwan, USA and Vietnam,” Offshore Alert reported.
Reportedly, among those embroiled in the suit are major cryptocurrency exchange Binance; HDR Global Trading, operator of the exchange BitMEX; and major blockchain-based projects Tron, Kyber Network, Block.One and Civic.
The law firm that filed the suit, Roche Cyrulnik Freedman, is no stranger to the cryptocurrency industry. It is also representing the Kleiman estate in its lawsuit against Craig Wright over some 1 million bitcoin and is suing iFinex, the parent company of the cryptocurrency exchange Bitfinex and stablecoin project Tether.
The crux of the new lawsuit alleges that these 42 defendants issued tokens to U.S. investors that were actually unregistered securities.
“The lawsuits against these crypto-exchanges alleged that they conducted unregistered sales of securities through engagement in market manipulations,” The Coin Republic reported.
However, there appears to be a significant uphill battle ahead for Roche Cyrulnik Freedman, which will have to wrestle with the general lack of clarity around token issuing rules, the legal teams behind such a vast number of defendants and the wide range of jurisdictions in which they reside.
“The plaintiffs and the litigation firm … will likely have a difficult time battling jurisdictions,” Bitcoin.com reported. “Moreover, there really hasn’t been a government standard or conclusion toward the unregistered securities argument thus far and regulators seem up in the air… In every one of the filings submitted on April 3 by Roche Cyrulnik Freedman, the allegations claim these token sales were completely centralized.”
Though that uphill battle, one that is compounded by inevitable delays stemming from the coronavirus outbreak, does not mean this lawsuit will have no effect on the defendants.
“In short, my assessment at the outset is that the merits of these cases are non-trivial,” Steven Palley, an attorney who specializes in cryptocurrency issues, wrote for The Block. “Time will tell, and it will take some time for them to be resolved, but that will certainly happen. This development, in any event, will likely keep a large number of lawyers busy for years to come and could be a harbinger of similar lawsuits to come.”
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