Legal expert: Regulatory uncertainty creates surge in 'new type' of lawsuits

Regulatory uncertainty surrounding cryptocurrencies has created a “fertile environment” for growth in cryptocurrency-related litigation and enforcement, according to attorneys at Choate Hall & Stewart LLP.

In an analysis published June 28 in Law360, attorneys from Choate Hall & Stewart LLP, including Mike Gass, Diana Lloyd, and Alex Bevans, pointed to mounting evidence of "novel applications of existing laws ” is being used to litigate users and investors of cryptocurrencies and predicts that this trend will only accelerate over time:

"High market caps, combined with widely discussed regulatory uncertainty, create fertile ground for growth in litigation and enforcement."

The lawyers cited a number of cases, including the indictment of a U.S. citizen for using cryptocurrencies in violation of sanctions, several lawsuits brought by the U.S. SEC in recent years, and a growing number of class-action and private lawsuits.

"Cryptocurrency trading platforms and those who trade and use cryptocurrencies must be aware that, in the current regulatory environment, litigation and enforcement activity may accelerate, possibly in unpredictable ways," the authors said.

In May, the U.S. Department of Justice (DOJ), through the U.S. District Court for the District of Columbia, filed its first criminal complaint against an unnamed U.S. citizen for using cryptocurrencies in violation of the International Emergency Economic Powers Act (IEEPA). sanctions.

Mike Gass, co-chairman of the firm's complex trials and appeals practice, and other lawyers said it showed "a growing willingness by government agencies to pursue criminal charges against those who use new types of currency in violation of old laws."

"If this case is any indication, that trend may be accelerating."

Other lawsuits the lawyers point to include the U.S. SEC's 2020 lawsuit against XRP creator Ripple Labs Inc and the 2021 lawsuit against decentralized content-sharing platform LBRY, both accused of offering unregistered securities in the form of digital tokens. .

Most recently, they point to, crypto lending platform BlockFi was fined $100 million in February for failing to register its retail crypto lending product.

The lawyers said the LBRY case in particular “demonstrates that the US SEC is willing to target a small project like LBRY as much as it did a large project like Ripple.”

The lawyers also point to studies that have found that the number of cryptocurrency enforcement actions in the 2019-2021 period is greater than in the 2013-2018 period combined.

Source: Cornerstone Research

Looking ahead, the lawyers believe the SEC and DOJ are poised to ramp up enforcement and "may be willing to pursue novel theories."

“Private lawsuits related to cryptocurrencies show no sign of stopping either. Increased regulatory certainty could help stem the tide of litigation, but it’s unclear if that will happen anytime soon.”