Leading exchanges & token issuers targeted by class-action lawsuits

On April 3, a series of lawsuits were filed in the Southern District of New York. The complaints allege that the firms sold unregistered securities in the form of crypto tokens to U.S. investors.

Those targeted by the suits include large exchanges such as Binance and HDR Global Trading (Bitmex), and several high profile crypto projects including Tron, Civic, Block.One and Kyber Project, which were named in separate actions.

Company principals, including high profile crypto personalities such as Binance founder Changpeng Zhao (CZ), Block.one CTO Dan Larimer, and crypto entrepreneur Vinny Lingham were also named in the suits.

The complaint against Binance states, "Binance and the Issuers wrongfully engaged in millions of transactions—including the solicitation, offer, and sale of securities—without registering the Tokens as securities, and without Binance registering with the SEC as an exchange or broker-dealer. As a result, investors were not informed of the significant risks inherent in these investments, as federal and state securities laws require."

The lawsuits were filed by the same firm that represents plaintiffs in litigation against Craig Wright and Bitfinex. The complaints allege that tokens were sold as unregistered securities and that token issuers violated registrations requirements, and that token exchanges violated numerous exchange and broker-dealer registration requirements under U.S. law.

It is expected that exchanges such as Binance and Bitmex will make the case that they have made all reasonable attempts to exclude U.S. users from their platforms. This is a grey area as regulations continue to firm up in jurisdictions around the world.

Due to the nature of the lawsuits, the international locations of the accused, and the uncertainty brought on by the COVID-19 pandemic, it may take years for the lawsuits to play out before resolution can be achieved – as has been the case in the numerous class action suits brought against Ripple / XRP.

The cases show that for crypto to begin to move towards a firmer regulatory footing, issues of whether digital assets can be classified as a security or not will need to be resolved, sooner, rather than later.