Major cryptocurrency exchanges, including Binance and BitMEX, have been pegged with 11 class action complaints at a federal court in Manhattan.
The collective suit, filed by law firms Roche Cyrulnik Freedman and Selendy & Gay PLLC on behalf of crypto investors, targets 42 defendants operating in many countries, namely Canada, China, Hong Kong, Israel, Japan, Malta, Switzerland, USA, among many others.
The legal action alleges that the defendants violated federal securities laws and mislead investors into buying unregistered assets.
The defendants include crypto issuers and exchanges, including KuCoin, BitMEX, Bprotocol, Status, Block.one, Civic, and Binance. The class-action lawsuit names executives like Block.one CTO Dan Larimer and Binance CEO Changpeng Zhao.
"Not unlike the mortgage crisis that led to the Great Recession, the alleged pattern of misconduct by exchanges and issuers yielded billions in profits for wrongdoers through a basic betrayal of public trust," Philippe Selendy, a partner at the law firm Selendy & Gay, said in a statement on Monday.
The case mirrors the SEC's insistence that the crypto-financial products must follow traditional securities rules and comes as part of a bigger regulatory and legal crackdown in the growing cryptocurrency industry.
According to the allegation, US regulations assume that Cryptocurrencies and tokens offered through ICOs are securities. As such, the plaintiffs claim that crypto issuers such as Block.one and Tron, and exchanges like Binance and BitMEX ran afoul of US laws because the vehicle being offered could be considered securities.
As securities, cryptocurrency platforms should follow the same rules as every exchange, including disclosures and registering through the SEC as a national exchange, an alternative trading system, or a broker-dealer.
The problem, the complaint says, was that many platforms refer to themselves as 'exchanges' and have set up their own rules when it comes to listing new cryptocurrencies. This gives the misimpression to investors that they are regulated or meet the regulatory standards while, in fact, the SEC has no say in this process and can't guarantee that those are safe investments.
Regulatory status of cryptos remains murky
"We are aware of the opportunistic complaints filed against several Blockchain and cryptocurrency companies. We have not been served with any claims but are well prepared to address anything that may arise," Block.one told Reuters in an emailed statement.
One of the law firms leading the litigation, Roche Cyrulnik Freedman, has been involved with two other crypto-related lawsuits against Tether and the self-proclaimed Bitcoin inventor Craig Wright's court case. The firm, which has offices in Miami and New York, focuses on litigation in emerging areas of law, such as cryptocurrency and cannabis. It offers clients flat-fee, success-based billing options.
The regulatory status of cryptocurrency offerings generally, remains somewhat murky. However, the SEC warned that securities law might apply to some virtual tokens depending on their specific characteristics.
Earlier this year, Hester Peirce, an SEC regulator dubbed "CryptoMom," has floated the idea of offering a 'safe harbor' to ICOs so that some crypto tokens are not treated as securities. Peirce proposed a three-year grace period for cryptocurrency startups to tweak their token-based fundraising models in new directions.
