This unregulated market faces a wave of lawsuits

More money and more people involved could lead to more litigation, says lawyer

This unregulated market faces a wave of lawsuits
Virtual currencies like Bitcoin and Ethereum have reached record highs this year – but analysts say initial coin offerings (ICOs) face a wave of litigation ahead amidst greater government scrutiny and fraud risks.  

In ICOs, startups sell a percentage of newly issued cryptocurrency in exchange for legal tender or other cryptocurrencies.

The value of Bitcoin tumbled earlier this month after The People’s Bank of China declared initial coin offerings illegal. In its website, the central bank said a “large number” of fundraising activities for ICOs have given rise to speculation, and invite suspicion of illegal financial activities.

“A successful civil claim against a token issuer for fraud or securities violations may trigger a flurry of other similar suits, but each case will vary based on the details of the sale,” Andrew Hinkes, an attorney at Berger Singerman, told Bloomberg BNA.

As of 16 September, ICO have raised over US$2.2bn in all-time cumulative funding, according to figures from Coindesk.

ICOs will have to be extra meticulous in correctly classifying their tokens. Andrew Hinkes, a dispute resolution attorney at Berger Singerman, told Bloomberg BNA that evolving technologies behind the coins can make it difficult to determine if a token is a security, utility, or digital currency. Those who fail to do so could be failing to comply with either securities or money services business regulations.

According to Brian Knight, senior research fellow at the Mercatus Center at George Mason University, investors have the right of recession it the security was issued not in accordance with the law.

“The larger a market becomes, the more people are involved, the more money involved, the more likely you have litigation,” said Stephen Palley corporate and commercial litigation attorney at Anderson Kill, as quoted by Bloomberg BNA. “People lose money, then sue.”

Related stories:
Beyond legal acumen: 5 must-have skills in today’s business landscape
Lawyers can now accept cryptocurrencies as payment in this US state

Free newsletter

Subscribe to our FREE newsletter service and we’ll keep you up-to-date with the latest breaking news, cutting edge opinion, and expert analysis affecting both your business and the industry as whole.

Please enter your email address below and click on Sign Up for daily newsletters from Australasian Lawyer.

Recent articles & video

Cyber attack targets major firm – report

IP firm strengthens partnership with key hire in Brisbane

Barristers in England and Wales at a “breaking point” – survey

Law Council renews call to raise the minimum age of criminal responsibility

Law reform body recommends changes to SA law and practice

Veteran litigator boosts Simmons & Simmons Hong Kong disputes resolution team

Most Read Articles

Cyber attack targets major firm – report

NewLaw pioneer to lead KPMG Law's legal operations transformation services arm

Baker McKenzie advises US company on cross-border healthtech acquisition

Being a bookworm got this HFW senior associate into the courtroom