Notable Crypto Lawsuits
BitConnect
Let’s start with arguably one of the most famous and blatant cryptocurrency Ponzi scams in the history of the crypto industry: BitConnect. When BitConnect’s house of cards finally disintegrated on January 18, 2018, the price of BBC crashed by 92% in a matter of hours. Unsurprisingly, the furious investors started panicking and immediately filed multiple (at least 3 this year) lawsuits against BitConnect for the violation of federal securities laws by the offer and sale of unregistered securities. Furthermore, in a class action lawsuit filed on February 7, 2018, the disgruntled investors argued that BitConnect operated as a Ponzi scheme and scammed thousands of investors out of millions of dollars, and they’re now seeking damages and equitable relief. The BitConnect case is a classic exemplar of everything that can go wrong when greed prevails and all the red flags are ignored.
Kraken
The second compelling case hit the headlines in July 2017 when five cryptocurrency traders filed a class action lawsuit against the Kraken crypto exchange for alleged negligence, breach of contract and unjust enrichment. In May 2017, the Kraken exchange experienced a DDoS attack which caused the platform to crash. While the platform was down the plaintiffs couldn’t access Kraken’s website and cancel their large sell orders, which in turn resulted in a combined loss of approximately $5 million. Furthermore, the plaintiffs held margin accounts and Kraken liquidated around $329.000 among the five of them. The plaintiffs maintain that Kraken acted with neglect because the exchange didn’t suspend trading during the lockout even though it could have done so easily.
Tezos
Next on our list is the controversial cryptocurrency project Tezos, which managed to raise around $232 million and become the 6th largest ICO (by amount raised) in the world. However, instead of becoming the classic crypto-fairytale success story everyone hoped it would, Tezos and its founders Kathleen and Arthur Breitman soon became a target of multiple (at least four) class action lawsuits. The Defendants were accused of capitalizing on the recent crypto hype by illegally selling unqualified and unregistered securities, all the while using a Swiss-based entity in an unsuccessful attempt to evade U.S. securities laws. This particular case made it in our top three because – due to the incredible sum of money involved in the ICO – it triggered a wave of so-called “copycat litigation” and revealed the money-making potential of crypto litigation to all the ambulance-chasing law firms out there.
Even though there are many other crypto lawsuits worth mentioning, we chose to highlight these three cases in an effort to illustrate some of the typical reasons why investors opt to pursue legal action against blockchain businesses.
Where Are the Lawyers in All of This?
The recent increase in cryptocurrency lawsuits coupled with the fact that regulators are still figuring out how to apply laws that were designed without decentralized ledgers in mind leaves lawyers no choice but to adapt and educate themselves in both the technical and the legal side of crypto — as fast as possible!
The growing adoption of DLT means that most businesses and industries will likely be affected by the proliferation of blockchains and cryptocurrencies in one way or another, which will result in an increased workload for the more technologically proficient lawyers. It won’t be long before clients expect from their lawyers to understand how smart contracts work, how to draft SAFTs, help create compliant STOs or airdrops, or even help navigate the possible failures and insolvencies of crypto businesses.
The Challenges
One of the biggest challenges crypto lawyers are facing at the moment – aside from the lack of clear regulatory guidelines – is dealing with clients, other lawyers, and judges that have not yet understood the blockchain technology in its entirety. Every lawyer knows that effective communication with his/her clients and colleagues is a crucial factor in the creation of successful business relationships and, mastering the fundamentals of crypto is the only way of accomplishing this.
The crypto-lawyers of the future will have an all-encompassing role; starting from the incorporation and drafting of Articles of Association to white paper reviews, preparing token sale documentation, drafting terms and conditions of the token sale, protection of intellectual property, KYC/AML compliance, tax advisory and, of course, legal representation in civil and criminal cases — they’ll be expected to mark every legal checkpoint in the life cycle of their client’s crypto business.
Voyaging the wild and murky waters of crypto litigation successfully demands a special kind of legal professional: one that is willing to embrace the regulatory chaos and master the ins and outs of the industry. Lawyers asking the right questions and working closely with blockchain engineers will be able to amass an incredible competitive advantage and position themselves as leading experts in a field that is slowly taking over the world.
More at https://www.bitrates.com/news/p/how-lawyers-are-navigating-the-new-frontier-of-crypto-lawsuits
