Cryptocurrency Lawsuits

Cryptocurrency Lawsuits graphic
ICOs have become the number one cause for cryptocurrency lawsuits. Usually, these lawsuits pertain to companies that advertised an ICO for a blockchain-related coin or company and then purposefully didn't deliver on promises made. ICO's allow anyone that has an idea for a new project, to easily raise capital without having to go through the formalities of an IPO and this leaves ample opportunity for fraudulent scammers to take advantage of eager investors. The outcome tends to be a heister running away with the money they falsely acquired and this inevitably leads to a nasty lawsuit. 

What is an Initial Coin Offering (ICO)?

An Initial coin offering or an ICO, is similar to Initial Public Offering (IPO) and is a well-known method of raising funds to start a new cryptocurrency. Investors into an ICO usually exchange existing crypto tokens like Ethereum or Bitcoin, for tokens of the new cryptocurrency. These new coins can then be used once the project of the new currency actually starts. ICO founders may update web pages, forum posts, or develop whitepapers all serving to advertise the project. As a result of their popularity in 2017, ICOs raised approximately $4 million and outperformed all other fund-raising ventures in the US. During the past 12 months, in particular, digital token sales via ICOs have been noticeably increasing. 

Cryptocurrency Lawsuits- Recent Class Actions Against ICO's:

During October and November 2017, four cryptocurrency lawsuits were filed against Dynamic Ledger Solutions, Inc (DLS). DLS was the founder of the Tezos project which raised a staggering $232 million in its ICO. The exchanges made were for tokens known as Tezzies. Tezzies allowed its holders to accelerate payments or execute smart contracts on the Tezos blockchain network. However, the plaintiffs alleged that due to a difference of opinion between the Tezos foundation and the Tezos founders in running the ICO, the actual implementation of the Tezos project was dramatically delayed and as a result, stocks price for Tezos tokens depreciated— losing around 50 percent of its value. The lawsuits also claimed that DLS was not truthful in detailing how the funds collected through the ICO would be spent. Also it was claimed that the Tezzies should have been registered with the SEC but they weren't. The number of causes in lawsuits varies – two cases represent violations of the Securities Act, while the other two include false advertising, unfair competition and misleading trade practices. And another... On December 13, 2017, a lawsuit was filed against Centra Tech, Inc., and the people involved in the Centra ICO. In this lawsuit, the defendants were accused of violating the US securities law through a token sale, which raised a capital of $30 million for the development of debit cards to exchange, spend, or withdraw cryptocurrencies. The complaint accused the defendants of intentionally misleading investors regarding its partnership with Visa and MasterCard, and additionally listing names of fake team members.

And another...

On December 19, 2017, aggrieved traders filed a class action lawsuit against Monkey Capital, alleging a fraudulent investment scheme and unregistered sale of securities. Monkey Capital promoted that it would be creating a decentralized hedge fund. It also pertained to be developing an interconnected network of cryptocurrency news and an information platform, which was to help exchange cryptos with other cryptos or fiat currency.

And another...

On December 21, 2017, another company - ATB Coin LLC did not opt to register coins and now faces a class-action lawsuit for violating the Securities Act. ATB issued unregistered securities in order to gain profits in the form of the ATB Coin. The plaintiff accused the defendants of misleading investors with fake advertisements regarding “the cryptocurrency’s capabilities and its future potential has enabled it to raise $12 million within first fifteen minutes of the ICO”. Along with that, the defendants made several public statements publicizing the ATB ICO and ATB Coins as investment opportunities.

And another...

On December 28, 2017, disgruntled investors of the Giga Watt ICO have filed a lawsuit alleging that tokens had security markings, but the company failed to register the coins with regulators. Also, Giga Watt retained its ICO to raise funds to build a cryptocurrency mining facility. The plaintiffs alleged that it is unpredictable if the mining project is under development and would it get completed.

Why is Class Action a Potential Risk?

Many times various ICO models are often sold in a way that is against the state and federal securities laws. As discussed, cryptocurrencies received during the ICO sale should be exchanged for new tokens and the raised funds must be used to develop the project. Failure to do so means that investors will more than likely file lawsuits against the ICO founders alleging fraud. As a result of the volatile nature of ICO's, social media channels such as Facebook has banned advertising of cryptocurrencies, ICOs, and fraudulent advertisements related to digital currency. Google has also announced restrictions on cryptocurrency promotional ads. Adhering to these decisions, many other internal channels including Twitter and global search engines have implemented similar restrictions on policies as Cryptocurrency lawsuits are on the rise. Featured Image: twitter

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