On April 3rd 11 class action lawsuits were filed in the Federal Court for the Southern District of New York against prominent crypto exchanges and crypto projects including Binance, BitMEX, KuCoin, Tron Foundation, EOS, Quantstamp, BiBox, Status, Civic, Bancor, and Kyber Network.
Notably, these lawsuits were filed by the Roche Freedman law firm. This is the same firm that is representing the Kleiman Estate in the case against Craig Wright, in addition to being the firm behind the class action lawsuit against Bitfinex and Tether Limited. This means that the Roche Freedman law firm is among the highest powered crypto law firms in the world, which right off the bat indicates that this onslaught of lawsuits is non-trivial.
When counting all of the principles, i.e. people in charge of these companies that were also sued, a total of 42 parties have been sued in these lawsuits across 16 countries including the USA, Canada, China, Japan, Israel, Vietnam, Switzerland, Cayman Islands, British Virgin Islands, Estonia, Hong Kong, Malta, Seychelles, Singapore, South Africa, and Taiwan.
Parties that were declared principles in these lawsuits and sued include major figures in the crypto space such as Binance CEO Changpeng Zhao, BitMEX CEO Arthur Hayes, and Tron Foundation CEO Justin Sun.
The site OffShoreAlert first broke this news, and they describe it as the crypto Red Wedding, referring to the Game of Thrones moment where the entire Stark army was slaughtered. It is too early to say if any crypto firms are going to be slaughtered due to these lawsuits, but it is certainly the most intense barrage of crypto lawsuits in history.
Although each lawsuit has its own individual grievances, the plaintiffs in these lawsuits generally claim that the crypto exchanges and crypto firms named in the lawsuits violated United States security laws by either issuing unregistered security tokens or selling them.
Essentially, this means that these firms did not provide investors with proper information and did not follow proper guidelines, leading to losses and damages. The Securities and Exchange Commission (SEC) has been using this same strategy for years to take down initial coin offering (ICO) firms, such as Telegram recently, and this is a strategy that has precedent and is proven to work.
The court process for these lawsuits could take years, and probably will not even really start for a few months due to the Coronavirus Pandemic causing courts to be closed nationwide. However, ultimately when these cases are finished it seems likely that many or all of these firms will end up losing in some way. The reality is that under law all of the firms named in these lawsuits either issued a crypto token that is considered a security or sold it, which is illegal.
To briefly recap what constitutes a security token under the SEC definition, essentially any cryptocurrency which is issued by a centralized company, and that company indicates to investors that the token will rise in value and/or the company profits on investors buying up the token, is considered a security token.
ICO companies have to register with the SEC before issuing a token that falls under the definition of a security, and crypto exchanges cannot legally sell unregistered security tokens.
The definition of a crypto security token is basically quite broad. It includes almost all cryptocurrencies besides really decentralized ones like Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), and Monero (XMR). This is why the SEC has been able to attack basically any crypto firm that they want and always win.
Although it could take years for these lawsuits to reach their conclusion, the SEC could theoretically jump in and sue these firms as well, especially since each of these lawsuits includes dozens of pages of evidence regarding the securities violations of each named crypto firm and principle.
These lawsuits are essentially doing the heavy lifting of finding and proving the securities violations for each of the crypto firms named, and now the SEC can jump in and sue as well. Further, it is quite likely that the Roche Freedman law firm has been coordinating with the SEC while preparing these lawsuits, since these lawsuits all center around securities laws.
Thus, the greatest barrage of crypto lawsuits in history has just occurred against prominent crypto exchanges and crypto projects, and it seems that these lawsuits have solid footing and will not simply go away. The lawsuits center around securities laws that were likely violated, and if securities laws were violated it is straightforward to claim that this caused investor damages.
Further, this probably opens the doors for SEC lawsuits against the crypto firms named in these lawsuits, in addition to opening the door for lawsuits against any other crypto exchange and crypto firm which has violated securities laws.
On a final note, news stories and actions centering around these lawsuits will likely be persistently happening during the coming months and years. There will likely be a negative effect on the altcoin market and the ability for traders to participate in altcoin trading. However, this trend has already been ongoing for years, with numerous ICO coins already being sued into oblivion and multiple altcoin exchanges being forced out of the United States.
All of that being said, Bitcoin (BTC) will not be threatened by these lawsuits. In fact, ultimately these lawsuits and any additional lawsuits that arise will likely increase the dominance of Bitcoin (BTC) even further.