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Litigation

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At the request of the Federal Trade Commission, a federal court has halted the activities of four individuals who allegedly promoted deceptive money-making schemes involving cryptocurrencies. These schemes falsely promised that participants could earn large returns by paying cryptocurrency such as bitcoin or Litecoin to enroll in the schemes. The complaint was filed under seal on February 16 and announced today.  It alleges that three defendants – Thomas Dluca, Louis Gatto, and Eric Pinkston –…

As early as September 2015, the CFTC took the position that virtual currencies such as Bitcoin are commodities. See In re Coinflip, Inc., No. 15-29 (C.F.T.C. Sep. 17, 2015). Based on that jurisdiction, in January, the CFTC brought a suit against Patrick K. McDonnell, of Staten Island, New York, and CabbageTech, Corp. d/b/a Coin Drop Markets (CDM). McDonnell brought a motion challenging the jurisdiction of the CFTC.  In a decision yesterday, the district court held that,…

When traders want to purchase crypto using traditional currency, or exchange one cryptocurrency for another, they do so via an exchange.  Coinbase is one of the world’s largest, with over 13 million users.  Over the past few days it has been hit with two class action lawsuits, both in federal district court in California. The first an insider trading case.   The suit claims Coinbase employees unfairly profited from the December listing of bitcoin cash. The…

We have reported in this space about how the SEC has indicated that most ICOs probably qualify as securities under U.S. law. see 1-3 and 1-23.  One of the SEC’s first enforcement actions in this regard was against  Maksim Zaslavskiy for his two initial coin offerings allegedly marketed through his companies REcoin and Diamond Reserve Club.   That was followed by a criminal suit. Yesterday, Zaslavskiy sought to dismiss the criminal case, arguing that the cryptocurrencies…

The U.S. Securities and Exchange Commission today charged a former bitcoin-denominated platform and its operator with operating an unregistered securities exchange and defrauding users of that exchange.  The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities. The SEC alleges that BitFunder and its founder Jon E. Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and…

Section 12(k) of the Securities Exchange Act of 1934 provides that, “if in [the SEC’s] opinion the public interest and the protection of investors so require, the Commission is authorized by order to (A) summarily to suspend trading in any security (other than an exempted security) for a period not exceeding 10 business days.” In Orders date February 15, the SEC relied on this rule to suspended trading in three penny-stock companies — Cherubim Interests…

We previously reported on the Kentucky court that issued a temporary restraining order against BitConnect.  On Wednesday, that TRO was extended to February 27. Yesterday, a new lawsuit was brought against BitConnect in federal court in Florida.  The judge in this case refused to enter a TRO freezing the defendants’ assets.  Following are the material parts of the decision: Plaintiffs argue that without the TRO, Defendants may “dissipate money generated from Plaintiffs and the Class or…

We previously reported how, in the Tezos litigation, the court denied a temporary restraining order that sought to enjoin the defendants from selling, transferring, converting, or otherwise disposing of any assets collected or derived from an ICO, holding that plaintiff had failed to show that he is likely to suffer irreparable harm in the absence of injunctive relief.  Today, in connection with the class action against BitConnect, (Paige v Bitconnect, case 3:18-cv-0058-JHM W.D. Ky 1-30-18),…

The CFTC disclosed today that, on January 16, in a case initially filed under seal, the CFTC sued and froze the assets of the creators of a supposed cryptocurrency called “My Big Coin” who allegedly took $6 million from unwitting buyers and used it to fund shopping sprees and pay off earlier investors.  My Big Coin Pay Inc. — a Nevada corporation whose product, the CFTC noted, sounded similar to Bitcoin — its founder Randall…

We have previously discussed the position taken by the U.S. SEC with respect to cryptocurrencies. But the US Commodity Futures Trading Commission (CFTC) also has a role to play. On September 17, 2015, the CFTC brought its first cryptocurrency action against an unregistered Bitcoin trading platform.  Coinflip, Inc. d/b/a Derivabit (Coinflip) and its chief executive officer Francisco Riordan were charged operating a facility for the trading or processing of commodity options (offering to connect buyers and…