Explains: Can crypto holders recover losses in court?

June 24 (Reuters) – A drop in cryptocurrency prices and a crash of one stack coin has led some investors to try to recover their losses in US court. Here is how lawsuits over cryptocurrency have gone so far and the challenges investors may face.

WHO IS SUBJECTED?

Companies that created cryptocurrencies, exchanges that simplified their sales, and individuals who promoted them have all been sued.

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

The latest lawsuit targeted Terraform Labs, the company behind Terra USD, due to the recent collapse of stablecoins.

A cryptocurrency investor sued the Seoul-based company and its CEO Do Kwon on June 17, claiming that they failed to register the company’s digital assets as securities and worked with several venture capital funds that supported Terra USD to defraud investors.

A spokesman for Terraform Labs said the allegations were unnecessary.

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

Both lawsuits have survived petitions for dismissal.

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

Cryptocurrency exchange has been another goal for investors who want to recover losses.

Binance US was sued on June 13 by investors who claimed that they incorrectly marketed TerraUSD as a safe asset before the 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 mentioned cryptocurrency. A lawsuit filed in Los Angeles claims Reality TV star Kim Kardashian and boxing legend Floyd Mayweather Jr. has engaged in a cryptocurrency pump and dump. Representatives of Kardashian and Mayweather did not respond to requests for comment. read more

LEGAL OBSTACLES

A wave of lawsuits filed in 2020 against stock exchanges that claimed they led to an illegal boom in digital coins largely failed after judges found some of the claims were submitted too late or had too little connection to the United States.

Timing should not be a problem for recent lawsuits, but cryptocurrency owners seeking to sue foreign companies in U.S. courts may still face obstacles.

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

KuCoin did not respond to a request for comment.

Another potential obstacle for investors submitting claims under securities or commodities 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 several obstacles when going after exchanges. In the Coinbase lawsuit, Oslo Børs has claimed that it was not a party to the transactions, and that private litigation cannot enforce registration requirements.

DOES ANY CRYPTO HOLDERS WIN MONEY IN COURT?

While many lawsuits about cryptocurrency are pending, the SEC has recovered some funds for investors in a handful of digital assets through settlement.

But even after a settlement, investors can face long wait times and still end up with less than they paid out.

Last year, the blockchain company Block.one agreed to pay $ 27.5 million to settle the token holders’ lawsuit alleging that they had violated the Securities Act.

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

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

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