Regulatory uncertainty creates rash of ‘novel’ lawsuits: Legal experts

Published at: June 29, 2022

Regulatory uncertainty surrounding crypto has created a “fertile environment” for crypto-related litigation and enforcement to grow, according to lawyers from Choate Hall & Stewart LLP.

In an analysis piece published on Law360 on Tuesday, lawyers from Choate Hall & Stewart LLP, including Mike Gass, Diana Lloyd and Alex Bevans, noted increasing evidence that “novel applications of existing laws” are being used to litigate against users and investors of cryptocurrency, predicting this trend to only accelerate over time:

“High market capitalization, alongside widely discussed regulatory uncertainty, has created fertile ground for litigation and enforcement to grow.”

The lawyers cited several cases as examples, including the prosecution of a United States citizen for violating sanctions using crypto, several lawsuits brought on by the SEC in recent years and a rising number of class action lawsuits and private litigation.

“Cryptocurrency trading platforms and those trading in and using cryptocurrency must recognize that litigation and enforcement activity is likely to accelerate in the current regulatory climate, perhaps in unpredictable ways,” the authors said.

In May, the United States Department of Justice (DOJ) issued its first criminal complaint against an unnamed U.S. citizen through the U.S. District Court for the District of Columbia for using crypto to violate sanctions under the International Emergency Economic Powers Act (IEEPA).

Lawyers from the firm, including Mike Gass, co-chair of the complex trial and appellate practice at the firm, said that this illustrates an “increased willingness of government agencies to pursue criminal charges against those violating old laws with new forms of currency.”

“If this case is any indication, this trend is likely to accelerate.”

Other litigation efforts noted by the lawyers include the Securities and Exchange Commission (SEC) lawsuits against Ripple (XRP) creator Ripple Labs Inc in 2020 and decentralized content sharing platform LBRY in 2021, both for allegedly offering unregistered securities in the form of digital tokens.

More recently, crypto lending platform BlockFi was issued a $100 million fine in February for failing to register its retail crypto lending product, they noted.

The lawyers said the LBRY case in particular “demonstrates the SEC's willingness to target smaller projects like LBRY as much as large projects like Ripple.”

The lawyers also noted research that found that the number of crypto enforcement actions between 2019-2021 was greater than every year to that point combined.

Looking ahead, the lawyers believe that the SEC and DOJ are poised to increase their enforcement efforts, and will “likely be willing to pursue novel theories:”

“Crypto-related private litigation also shows no sign of letting up. Increased regulatory certainty may help stem the litigation tide, but it is unclear whether this will happen anytime soon.”
Tags
Regulation
Sec
Law
Department Of Justice
Related Posts
Powers On... Why the fear of ICO enforcement and liability is coming to an end
Powers On... is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on “Blockchain, Crypto and Regulatory Considerations.” Well, well, well. It seems that some of those class-action law firms that ferret out possible securities claims in search of fees and recovery for investors, sometimes wrapped self-righteously in the flag of investor harm and rights, are properly receiving a cold shoulder …
Regulation / July 27, 2021
Seven times that US regulators stepped into crypto in 2020
As digital assets made strides toward mainstream status in 2020, the guardians of the incumbent financial system have been working hard to minimize disruption caused by their integration. In the U.S., regulatory and law enforcement interventions throughout the year have left some projects out of business, empowered traditional players to take a closer look at crypto, and sent some unequivocal messages to cryptocurrency service providers globally. Naturally, the steady legitimization and expansion of the crypto space led regulators to get more involved than ever before. Below are the biggest cases of U.S. watchdog and law enforcement agencies’ involvement that have …
Regulation / Jan. 12, 2021
Declaring a crackdown? What to make of the DoJ crypto framework release
The United States Attorney General’s Cyber-Digital Task Force recently unveiled the result of its months-long effort to evaluate emerging cryptocurrency-related threats and articulate law enforcement strategies for countering them. The resulting guidance leaves the reader with an impression that its authors have a sound understanding of how the focal asset class works as well as a certain fixation on the ways it can be misused, as some observers contend. In the highly charged atmosphere of the final weeks before the presidential election, with high-profile enforcement actions against the people behind crypto derivatives exchange BitMEX and the U.S. government’s sweeping anti-monopoly …
Blockchain / Nov. 1, 2020
New crypto litigation tracker highlights 300 cases from SafeMoon to Pepe the Frog
A new crypto litigation tracker from commercial law firm Morrison Cohen LLP shows details of more than 300 active and settled court cases since 2013. Morrison Cohen is a New York-based firm that caters to large financial institutions, entrepreneurs and early-growth stage companies and specializes in capital markets, business litigation, real estate and bankruptcy, to name a few. The company also has a cryptocurrency litigation team. The Morrison Cohen Cryptocurrency Litigation Tracker was published on Tuesday and contains any case development related to the United States Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), the Department of Justice …
Blockchain / May 5, 2022
California Moves Forward With Digital Asset Bill
California’s Senate Banking and Financial Institutions committee has passed a bill seeking to define digital assets and measure its impact on the state and consumer protections. Assembly Bill 2150, which can potentially influence how federal regulators approach digital assets, unanimously passed the Senate’s Banking and Financial Institutions committee. It will be discussed in the Committee on Appropriations as early as August 17. The bill had previously passed the California Assembly before moving to the Senate. The bill, first proposed by California Assembly Majority Leader Ian Calderon, initially sought to presume digital assets are not securities. However, amendments to the bill …
Regulation / Aug. 15, 2020