The ICO’s teamwork ship appears to have set sail (without much damage to the defendants), but with some very useful tips to keep in mind.
Last year, I wrote about 11 class actions filed in the Southern District of New York against four crypto-asset exchanges and seven digital token issuers.
The crux of those cases was that the defendants offered and sold unregistered securities in violation of state and federal securities laws. The alleged activities that led to the filing of the complaints occurred in 2017 and 2018. The defendants offered several grounds for dismissal, including that claims had fallen into a one-year statute of limitations on claims arising from the issuance and sale of unregistered securities.
In the past few months, two of the lawsuits (Bibox and BProtocol Foundation (Bancor)) were dismissed, while five others (Quantstamp, Status Research, Civic Technologies, HDR Global Trading (Bitmex) and Kaydex (Kyber Network)) were voluntarily dismissed. eviction. The remaining four cases (Binance, Kucoin, Tron, and BlockOne) make their way through the legal system. As an aside, the plaintiff in the Bibox case moved to reconsider denying their state law claims on the grounds that the state’s statute of limitations can be extended for plaintiffs who are ignorant of the law, and the court recently set a summary schedule on that proposal for reconsideration.
Kevan Sadeghi, a litigation partner at Chef Hardin, who represented the defendants in one of the cases that was voluntarily dismissed, explains that in the two cases that were voluntarily dismissed, the plaintiffs sought to extend the limitation period by claiming that they did not know the token was a security Prior to April 3, 2019, the date when the Investment Contract Analysis Framework for Digital Assets was released by staff at the Securities and Exchange Commission (SEC). But the courts did not buy it.
“In the end, it came down to the issue of the statute of limitations,” Al-Sadiqi adds. He explains that in the two cases that were dismissed, the court ruled that there was no basis for extending the statute of limitations. He added that this may be the reason why the other five cases were voluntarily rejected. “The plaintiffs’ attorney saw the writing on the wall.”
For the four cases that are still active, additional claims and/or allegations are circulating within a year of the date the lawsuit was filed, Sadeghi said. Therefore, the defense of the statute of limitations itself may not be the basis for a full dismissal at the stage of pleadings.
Regarding the two cases that were rejected, in BProtocol مؤسسة Foundation, the court found that the plaintiff had failed to claim actual injury resulting from his purchase of BNT digital currency, and had failed to claim a causal relationship between his alleged injury and the crypto offer made by the defendants two years earlier. The court also refused to establish that it had personal jurisdiction over the defendants (the Switzerland-based organization that issued the codes and the individual defendants, the issuer’s officers, who are Israeli citizens).
in a In Re Bibox, the court found that the plaintiff did not have capacity with respect to claims relating to five of the six codes described in the complaint because he had never Bought those tokens. Significantly, the court refused to attribute to those five tokens the essential features of the Bix token, and thus, all claims relating to these five tokens were dismissed. With regard to the claims relating to the remaining Bix, the court found that those claims had a statute of limitations and, therefore, the entire complaint was dismissed.
taken together, BProtocol مؤسسة Foundation And In Re Bibox Proving that securities laws must be interpreted narrowly when it comes to private prosecutors. With a private cause of action, courts require actual injury and actual causation. There must be a real connection between the United States and the sale of tokens, as well as between the accused.
But it is an entirely different standard when the SEC is the plaintiff, as in the enforcement actions that the SEC brought against Ripple Labs and LBRY.
Sadeghi explains that the SEC does not need to show self-reliance or injury. They just need to show the violation. Moreover, the Securities and Exchange Commission asserts jurisdiction over any violation that has material conduct or significant implications in the US According to Sadeghi, for private prosecutors, it is limited to domestic transactions. What’s more, when the Securities and Exchange Commission is the plaintiff, it has five years to file a case, he explains, and possibly longer for some types of relief.
With class-action lawsuits dismissed raising questions about the application of securities laws to sales of digital assets, observers are now looking closely at the SEC’s case against Ripple Labs, says Louis Cohen, co-founder of DLx Law.
Cohen points out that unlike private lawsuits where plaintiffs seek monetary relief, the SEC’s enforcement actions emphasize a higher principle, that securities laws have meaning and importance to be observed, even if short-term enforcement of the law may It conflicts with the interests of the holders of the sold assets. “How the judges resolve this case will have far-reaching implications for the future of digital assets,” Cohen says.
Jason Gottlieb, president of Morrison Cohen’s Law Enforcement and Supervisory Group, explains that the Securities and Exchange Commission (SEC) plays by a different set of rules. As a result, he says, “they probably succeed as much as private prosecutors can’t.”
Gottlieb notes that commentators may read a lot about the mid-game skirmishes where the Ripple defendants win some discovery moves. He suggests that these gains may provide the defendants with a different set of facts to present to the court. But he says that these document production battles “may not ultimately determine the fundamental question of whether or not XRP represents security. We have no idea what will happen because we don’t know what the documents will say.”
Drew Hinx, an attorney at Carleton Fields PA in Miami who works on crypto issues, notes that enforcement action against Ripple is the most significant lawsuit in the crypto space right now. “Everything else is just noise,” says Hincks.
Hinkes explains that Ripple has the resources to move the case with the previous ruling to an appeal where the appellate court will have a chance to determine what the law is.
Gottlieb agrees. “Only the Supreme Court of the United States can consider an annulment Howey Regarding digital assets. And for the first time in an SEC crypto case, we have defendants who can deliver on their promise to take the case to the highest court. They have the legal firepower, and the resources to pay the fees of very distinguished attorneys. Any judgment from the district court may only be the first step in a longer battle.”