Summarising crypto-related legal proceedings

In the end of 2017 and 2018, number of legal proceedings involving cryptocurrencies has drastically increased, primarily in the US. These legal proceedings are different in nature and include corporate disputes (such as Tezos Foundation case, R3 v Ripple), customer claims against crypto companies — service providers (U.S. v. Coinbase), actions brought by regulators to court (SEC v AriseBank, et al., etc.) and others. The vast majority of disputes are those arising out of allegations of fraud or claims of unregistered securities offering brought by individuals participated in initial coin offerings (the ICO).[1]

The U.S. known for its litigious environment is viewed as the best place to protect investors’ rights, but to date U.S. courts have been very cautious in terms of final determinations as far as crypto is concerned. As of today, few courts issued final decisions that coins constitute investment contracts and are, therefore, subject to federal securities laws, including the registration requirements promulgated thereunder. Are crypto asset holders well protected? What type of legal resource they have? Is it only to extent their crypto assets are legally recognised in their country of residence or incorporation? In absence of established court practice or developed case law in the U.S. and other jurisdictions and in light of uncertainty in regulation with respect to crypto as well as lack of proper understanding of distributed ledger technology (the DTL) by courts, we may see unsuccessful attempts to seek protection of investors’ rights.

Among recent disputes involving customers and providers of crypto services are U.S. v. Coinbase (U.S. District Court, the Southern District of Florida, pending) and Feng Bin v. Exchange OKCoin (People’s Court of Haidian District, August, 2018).

Many disputes arise from the actions brought by regulatory authorities against companies which have conducted the ICO.[2] The trend is that the position expressed previously by the regulator is supported by the court as well.

There are also disputes between crypto services providers and the banks refusing to service companies dealing with crypto.[3] In addition, two insolvency cases have been initiated in the Netherlands and Russia.[4]

Truely global by nature, crypto has no specific place of origin, so choosing the right form for protecting rights arising out or in connection with different types of crypto-assets may be not that unambiguous. Domestic or international arbitration has not obtained much popularity so far. Possibly, an alternative body or mechanism for resolution of crypto specific disputes with relevant expertise and knowledge of blockchain and DLT, generally, needs to be established.

[1] The resolved and pending investment-related cases alleging unregistered sale of securities include Ryan Coffey v. Ripple (Superior Court, California State, May, 2018; for plaintiff’s notice of motion and motion to remand and memorandum of points and authorities in support thereof please click here; for full complaint text please click here), John Hastings v. Unikrn (King County Superior Court, Washington, pending; for full complaint text please click here), Hodges, et al. v. Monkey Capital LLC, et al (U.S. District Court, the Southern District of Florida, August, 2018; for full complaint text please click here; for amended complaint text please click here; for final default judgment text please click here), Rensel v. Centra Tech, Inc., (US District Court, the Southern District of Florida, June, 2018; for full complaint text please click here; for Report and recommendation on plaintiff’s renewed motion for a temporary restraining order, asset freeze, document preservation order, and order to make accounting and other ancillary relief please click here), David Oconer, et al. v. Ripple (Superior Court of California, June, 2018; for full complaint text please click here; for Notice of pendency of other actions or proceedings pursuant to civil local rule 3–13 please click here), In re Tezos Securities Litigation (U.S. District Court, the Northern District of California, pending; for full complaint text please click here), Balestra v. ATBCOIN, LLC (U.S. District Court, the Southern District of New York, pending; for full complaint text please click here), Moss v. Giga Watt, Inc. (U.S. District Court, the Eastern District of Washington, pending; for full complaint text please click here) and Davy v. Paragon Coin Inc. (U.S. District Court, California Northern District, pending; for full complaint text please click here). Many of them are class actions lawsuits. In one case plaintiffs sought for voluntary dismissal (Stormsmedia, LLC v. Giga Watt, Inc.; for full complaint text please click here; for Joint stipulation regarding plaintiff’s voluntary dismissal please click here).

[2] These are the examples: Commodity Futures Trading Commission (CFTC) v. McDonnell and CabbageTech (U.S. District Court, Eastern District of New York, August, 2018; for full complaint text please click here; for Memorandum, findings of fact, conclusions of law, and directions for final judgment and injunction text please click here), CFTC v. My Big Coin (U.S. District Court, District of Massachusetts, September, 2018; for full complaint text please click here; for Memorandum of decision please click here), SEC v. AriseBank, et al. (U.S. District Court, Northern District of Texas, pending; for full complaint text please click here; for text of amended complaint please click here; for Order governing the sale of tangible personal property of the receivership entities please click here), SEC v. PlexCorps (Federal court, Brooklyn, New York, pending; for full complaint text please click here) and U.S. v. Maksim Zaslavskiy (U.S. District Court, Eastern District of New York, pending; for full complaint text please click here; for Defendant’s motion to dismiss indictment for subject matter jurisdiction and vagueness please click here).

[3] Few of those include Bits of Gold Ltd. V. Bank Leumi (Supreme Court of Israel, 2018) and Orionx v. Bancoestado, Banco de Chile, Banco Bice, Itaú Corpbanca, Santander, and Scotiabank (Chile) and Coindelta Exchange, Koinex Exchange, Throughbit Exchange and CoinDCX v. Reserve Bank of India (India).

[4] These are Koinz Trading B.V. v. Mr. Vries (Midden-Nederland court, January 2018; for unofficial translation of court decision please click here) and Insolvency practitioner v. Mr. Tsarkov (Commercial Court of Moscow, March 2018; 9th Appellate Court in Moscow, May 2018; for Arbitrazh Court ruling in russian please click here; for 9th Court of Appeals decision in russian please click here).

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