On April 3, a massive deployment of lawsuits were filed against major crypto industry players across the globe. The eleven lawsuits were filed in the United States District Court for the Southern District of New York in what is being called “Bloody Friday” for the industry.
These lawsuits are class action in nature. For those unfamiliar with the term, this means a group of people have joined together to file a lawsuit against another party. Class action lawsuits are not very popular on an international level for a number of reasons, the most prominent being that most of the time after filing the suit, claimants are allowed to grow their class by seeking new parties to add to the lawsuit. Many people believe that fake claimants come forward looking to simply “join the party,” or people that otherwise had no issue with the defendant suddenly develop one. These additional claimants can be sought so that the many hundreds of individuals claims cannot possibly be reviewed, resulting in some claimants receiving money upon the lawsuit’s success with little to no investigation. The U.S. is very well-known for class action lawsuits.
The suits filed on Friday involve both private individuals and companies operating in the crypto space, and the claims within are a collection of various securities violations pursuant to U.S. securities laws. As a result, the claimants want compensation for damages, claiming that they have suffered as a result of these companies breaking the law.
Upon closer inspection of the lawsuits and a high-level view of all facts surrounding them, there are a large number of holes. These holes can give some good indication as to how the lawsuits will likely pan out. Let’s look at them one at a time.
The filing law firm’s performance
The lawsuits were filed by Roche Freedman, a New York-based law firm that shot to fame in the crypto space by representing Craig Wright in a number of his lawsuits. These lawsuits were against the parties who denounced Wright’s claim to being the real creator of Bitcoin (BTC).
For those of us who have been following Wright’s lawsuits, their relative lack of success in improving his position or overall reputation has been noticeable. Moreover, when looking at a number of the motions and papers filed, a lack of notable substance becomes clear. Essentially, some of the things filed were useless in court, with the judge denouncing Wright’s conduct in some elements of the cases.
The first rule of litigation, especially in the U.S., is to manage your client. Then, manage the lawsuit. It seems that, given Roche Freedman’s performance in the space thus far, the firm may lack the requisite crypto knowledge to truly be effective in such lawsuits.
Companies’ terms and conditions
Found on the websites of the defendants, the terms and conditions or contracts agreed by these claimant parties include a waiver of class action lawsuits. Contractually, parties are allowed to waive class action suits. This waiver means that, in agreeing to the companies’ contracts or terms and conditions, counterparties also agree not to enter into a class action lawsuit.
Protection by corporation/company
Most individuals do not conduct business personally. Most business is conducted through companies and corporations. The whole purpose of doing so is to protect the personal assets of the owners. Businesses are therefore often referred to as “limited liability.” Naming an individual in a lawsuit just for owning a company fails 90% of the time. It is not the individual who owns the business that is a party to the contract but rather the business itself.
Naming an individual personally in a lawsuit is often a scare tactic. The sight of one’s legal name in a lawsuit can be daunting and puts them in a more defensive negotiating position.
Two-year statute of limitations
There is a little-known clause in the U.S. Securities Act that invokes a two-year statute of limitations against private claims brought forth by individuals.
A statute of limitations starts at the date of first sale. Looking at a number of the crypto companies involved in the lawsuit, their first sales (through initial coin offerings or otherwise) occurred well over two years ago. This means that the claimants have run out of time to bring the lawsuits against the defendants. Preventing such delayed legal action is the whole point of a “limitation” clause in a law.
The most notable names mentioned in the suit include Binance, KuCoin, BiBox, BitMEX and Tron Foundation along with individuals Dan Larimer, Brendan Blumer, Vinny Lingham and Changpeng Zhao, among others. Most of these parties and companies are not citizens or residents of the U.S. Moreover, their websites and terms exclude doing business with U.S. citizens and residents.
If the claimants have misrepresented their citizenship or residency of the United States upon agreeing to the companies’ legally-binding terms and contracts, they cannot then expect to rely on that in a lawsuit.
As we can see, on closer inspection of the lawsuits, the claimants’ chances of success are relatively slim. Naturally, this does not mean that the lawsuits will be concluded quickly or cheaply. U.S. lawsuits are notorious for both time and cost spent, especially in light of the current global climate and court closures. It will be interesting to see how these suits develop over the next few months.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Cal Evans is an international technology lawyer from London who studied financial markets at Yale University and has experience working with some of the best-known companies in Silicon Valley. In 2016, Cal left a top-10 California law firm to start Gresham International, a legal service and compliance firm specializing in the technology sector that now has offices in the U.S. and the United Kingdom.