The tide has turned in the crypto industry. The stories in the press concerning announcements of new protocols have increasingly been replaced with announcements around enforcement actions by the Securities and Exchange Commission as they have clamped down on historical Initial Coin Offerings which have now mostly been deemed to have been illegal securities offerings.
The success of these actions by the regulators has started to embolden private sector parties in going after both issuers of new crypto assets as well as crypto-exchanges. In April alone, there were 11 class action suits filed in the Southern District of New York against four crypto-asset exchanges and seven digital token issuers. At the core of these proceedings is the complaint that exchanges including Binance, Bibox, BitMEX and KuCoin, as well as seven issuers of digital tokens: Block.one, Tron, Bancor, Civic, Kybercoin, Quantstamp, and Status failed to comply with federal and state securities laws intended to protect investors from unscrupulous behavior.
While these complaints are varied in nature, they center around the notion that issuers were responsible for illegally offering unregistered securities to U.S. investors, and that crypto-exchanges are guilty of facilitating the trade of securities without the requisite licenses. Moreover, some of the allegations suggest that these exchanges have been involved in elaborate schemes of fraud, manipulation and insider trading.
Earlier in the month, I interviewed Lewis Cohen and Greg Strong from crypto law experts DLx Law to understand more about the arguments that the complainants in these cases are making in their civil lawsuits, their validity and the potential implications of these suits for the blockchain and cryptocurrency sector as a whole.
The Statute Of Liabilities May Not Have Run Out As Originally Suggested
One key challenge that many of the recent civil class action lawsuits will face is that the strict one-year statute of limitations for bringing these cases may have expired. In other words, the plaintiff filed too late according to the statute of limitation provisions in U.S. securities law for the violation of selling an unregistered security, since the sales in question took place more than one year ago. Andrea Tinianow, contributor to Forbes pointed this out earlier in April this year.
Lewis and Greg agree that that this may be a challenge but suggest that the plaintiffs could argue that the law regarding the classification of the various digital tokens as securities has been ambiguous and that it wasn’t until the Securities and Exchange Commission published their framework guidance in April 2019 that a reasonable purchaser had clarity with respect to determining whether the SEC would consider a particular digital asset as a security.
The plaintiffs in the class action suits may argue that the statute of limitations on their claims can only…