Explainer: Can crypto holders recoup losses in court?


Representations of virtual cryptocurrencies are placed on US dollar bills in this illustration taken on November 28, 2021. REUTERS / Dado Ruvic / Illustration / Archive photo

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June 24 (Reuters) – Falling cryptocurrency prices and the fall of a stable currency have led some investors to try to recoup their losses in US courts. Here’s how cryptocurrency has been so far and the challenges investors may face.

WHO IS DEMANDED?

The companies that created cryptocurrencies, the stock exchanges that facilitated their sale, and the individuals that promoted them were sued.

Kyle Roche, who represents cryptocurrency holders in several lawsuits, said U.S. claims about cryptocurrency often involve alleged violations of federal securities or commodity laws, which prohibit fraud and manipulation and require products and operators to be registered with the US authorities.

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The latest lawsuit was directed at Terraform Labs, the company behind Terra USD, for the recent collapse of stablecoin.

A cryptocurrency investor sued Seoul-based company and CEO Do Kwon on June 17, alleging that they did not record the company’s digital assets as securities and worked with several venture capital funds that supported the USD USD to defraud investors.

A Terraform Labs spokesman called the allegations unfounded.

Tether, which is behind the world’s largest stable currency, has been accused of manipulating cryptocurrency markets in a lawsuit in New York. And Ripple, whose founders created the XRP token, suffered a lawsuit in California, claiming it sold unregistered securities.

Both lawsuits survived the dismissal petitions.

A spokesman said Ripple disputes the allegations and will defend against them. Tether did not respond to a request for comment.

Cryptocurrency exchanges have been another target for investors looking to recoup losses.

Binance US was sued on June 13 by investors who claimed it was falsely trading TerraUSD as a safe asset before its collapse. And in March, investors accused Coinbase of selling 79 digital assets as unregistered securities. Read more

Binance and Coinbase have denied the allegations.

Investors are also suing celebrities who have publicly promoted cryptocurrency. A lawsuit filed in Los Angeles claims that reality TV star Kim Kardashian and boxing legend Floyd Mayweather Jr. participated in a pumping and unloading of cryptocurrencies. Representatives from Kardashian and Mayweather did not respond to requests for comment. Read more

LEGAL OBSTACLES

A wave of lawsuits filed in 2020 against stock exchanges alleging that they fueled an illegal boom in digital currencies has largely failed after judges ruled some of the claims were filed too late or had very little connection to the United States.

The timing shouldn’t be a problem for younger lawsuits, but cryptocurrency holders seeking to sue foreign companies in U.S. courts could still face obstacles.

Token holders won a default ruling in New York against Singapore-based exchange KuCoin, but dropped the case after a Singapore court did not force the company to provide information to enforce the ruling.

KuCoin did not respond to a request for comment.

Another potential hurdle for investors filing claims under securities or commodity laws will be to show that their tokens meet the legal definition of these assets. Some courts have ruled that certain cryptocurrencies fit the bill, but the problem remains unresolved.

Cryptocurrency holders may face additional obstacles when pursuing exchanges. In Coinbase’s lawsuit, the exchange argued that it was not part of the transactions and that private litigants cannot enforce the registration requirements.

HAVE ANY CRYPTO HOLDERS MADE MONEY IN COURT?

Although many cryptocurrency lawsuits are pending, the SEC has claimed some funds for investors in a handful of digital assets through liquidations.

But even after a deal, investors can face long waits and still end up with less than they paid.

Last year, blockchain company Block.one agreed to pay $ 27.5 million to settle the lawsuit of token holders alleging it had violated securities law.

More than 100 token holders have filed claims worth more than $ 75.7 million, according to court documents. The settlement has not yet received final approval.

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Report by Jody Godoy; Edited by Noeleen Walder and Richard Chang

Our standards: the principles of trust of Thomson Reuters.



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