As investors around the world eye $1.5 trillion in recent cryptocurrency losses, a storm of class action lawsuits is brewing. A big question is: who, if anyone, is to blame?
See: Bitcoin drops below $20,000 as cryptocurrency rout continues
US federal regulators say 46,000 people have reported losing $1 billion worth of crypto to scams since January 2021.
Given the millions invested in promoting crypto – often with celebrity endorsements – legal action after the crash was inevitable. Class action lawsuits are already underway, the Guardian reported on Saturday.
Kim Kardashian and boxer Floyd “Money” Mayweather Jr are being sued over alleged false statements promoting the cryptocurrency miner EthereumMax.
The lawsuit alleges that they encouraged subscribers to join “the EthereumMax community” and that the token itself was a “pump and dump” scheme that misled investors.
Charles Randell, head of the UK’s Financial Conduct Authority, said in a speech at an economic crime symposium that he couldn’t say whether the token in question was a “scam…but influencers of the social media are regularly paid by scammers to help them pump and dump”. new tokens on the back of pure speculation”. EthereumMax described the legal claim as a “misleading narrative”.
In October last year, actor Matt Damon made his debut as a Crypto.com pitchman, telling viewers that “fortune smiles on the brave”. The announcement was seen as a turning point for crypto – a financial investment backed by a Hollywood A-lister.
See: Here’s how much money you would have lost if you bought crypto during Matt Damon’s ‘Fortune Favors the Brave’ ad
Other digital assets are also under scrutiny. Earlier this month, the US Department of Justice charged Nathaniel Chastain, a former employee of OpenSea NFT Marketplacewith wire fraud and money laundering as part of a scheme to trade NFT assets.
But prosecuting crypto fraud is difficult. Many lawsuits have been filed for theft, but prosecuting digital fraud comes up against an unresolved question: Are cryptocurrencies securities?
The American definition of what a security is is based on something called the “Howey test” and derived from a decision of the Supreme Court, Securities and Exchange Commission (SEC) against WJ Howey Co. decided in 1946, well before the era of cryptography.
See: SEC Chief Gensler Says Crypto Crash “Highlighted” Need for Regulation
If cryptocurrencies are a security, the United States SEC has jurisdiction and fraudulently selling unregistered securities could be a crime, with up to five years in prison.
Whether the people who cast celebrities could be held liable is open to question. First, the courts should decide whether cryptography is a security, and then whether that security has been fraudulently promoted.
As commentators pointed out this week as the crypto markets crashed, no cryptocurrency has been registered as a security and the exchanges or lenders they may go through are not backed by the Government Federal Deposit Insurance Corporation. (FDIC) insurance guarantees.
On Monday, crypto exchange Binance halted bitcoin withdrawals for several hours after crypto lender Celsius Network also blocked withdrawals, trades and transfers on its platform. Binance blamed a “stuck transaction” for its suspension.
See: Binance resumes bitcoin withdrawals as crypto prices crash
The next day, the SEC launched an investigation into whether crypto exchanges had adequate safeguards in place to prevent insider trading. The survey is supposed to include the best-known exchanges – Binance, Coinbase, FTX and Crypto.com, Kraken, Bitfinex and Crypto.com, the Guardian reported.
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Trillion-Dollar Crypto Collapse Sparks Wave of US Lawsuits – Who’s to Blame? – CBS
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