A crash in a stable coin and a downturn in the price of cryptocurrencies has led some investors to try to recover their losses in the U.S. court. Here is how the litigation of cryptocurrencies has fared, and the challenges that may be faced by investors.
The companies that created cryptocurrencies, exchanges that facilitated their sale, and individuals who promoted them have been sued.
Kyle Roche, who represents cryptocurrencies in several lawsuits, said that the U.S. claims overcryptocurrencies often involve alleged violations of federal securities or commodities laws, which prohibit fraud and manipulation and require products and operators to be registered with U.S. authorities.
The company behind TerraUSD, the company behind the stable coin, has been hit with a lawsuit from the Terraform Labs, over the stable coin's recent collapse.
A crytocurrency investor sued the Seoul-based company and its CEO Do Kwon on June 17, alleging they failed to register the company's digital assets as securities and working with several venture capital funds that backed TerraUSD to defraud investors.
Tether, which is behind the world's largest stable coin, has been accused of rigging the market for cryptocurrencies in a lawsuit in New York. And Ripple, whose founders created the token XRP, has been hit with a lawsuit in California, accusing it of selling unregistered securities.
Both of the lawsuits have survived motions to dismiss.
A spokesman said Ripple disagrees with the allegations and will defend themselves against them. Tether did not respond to a request for comment.
It is a target for investors looking to recover losses due to the exchanges of criptocurrencies.
On June 13 by investors, they claimed that TerraUSD was marketed as a safe asset ahead of its collapse. In March, investors accused Coinbase of selling 79 digital assets as unregistered securities.
The allegations have been denied by Binance and Coinbase.
The celebrities that have publicly toutedcryptocurrencies are being sued by investors. A lawsuit filed in Los Angeles states that Reality TV star Kim Kardashian and boxing legend Floyd Mayweather Jr.Mayweather Jr. were involved in a criptocurrency pump and dump. Representatives for Kardashian and Mayweather did not respond to requests for comment.
A wave of lawsuits brought in 2020 against exchanges alleging they fueled an illegal boom in digital coins failed after judges found that some of the claims were too late or had too little connection to the United States.
Timing shouldn't be an issue for newer lawsuits, but cryptocurrencies holders who want to sue overseas companies in U.S. court could still face a lot of hurdles.
Token holders won a default judgment against Singapore-based exchange KuCoin, but dropped the case after a Singaporean court wouldn't make the company provide information to enforce the judgment.
There is a possibility that investors filing claims under securities or commodities laws will have to show their token meets the legal definition of assets. Some courts have ruled that certain cryptocurrencies fit the bill, but the issue remains unresolved.
There may be additional obstacles for the holders of cryptocurrencies when they go after exchanges. In the case of Coinbase, the exchange argued that it was not a party to the transactions, and that private litigants can't enforce registration requirements.
The SEC has reclaimed some funds for investors in a handful of digital assets through settlements, despite the fact that many of the lawsuits are pending.
After a settlement, investors may have to wait a long time to get their money back and they may end up with less than they shelled out.
Last year, Block.one agreed to pay $27.5 million for a lawsuit by the 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 filings. The settlement hasn't received final approval yet.