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Explainer: Can crypto holders recover their losses in court?

June 24 (Reuters) – A drop in cryptocurrency prices and the crash of a stablecoin has led some investors to try to recoup their losses in a U.S. court. Here’s how cryptocurrency litigation has unfolded so far and the challenges investors may face.

WHO IS PROSECUTED?

Companies that created cryptocurrencies, exchanges that facilitated their sale, and individuals who promoted them have all been prosecuted.

Kyle Roche, who represents cryptocurrency holders in several lawsuits, said US claims involving cryptocurrency often involve alleged violations of federal securities or commodity laws, which prohibit fraud and fraud. handling and require products and operators to be registered with US authorities.

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The latest lawsuit targeted Terraform Labs, the company behind Terra USD, following the recent collapse of the stablecoin.

A cryptocurrency investor sued the Seoul-based company and its chief executive Do Kwon on June 17, alleging they failed to register the company’s digital assets as securities and worked with multiple capital funds -risk who backed Terra USD to defraud investors.

A Terraform Labs spokesperson called the claims unsubstantiated.

Tether, which is behind the world’s largest stablecoin, has been accused of rigging cryptocurrency markets in a trial in New York. And Ripple, whose founders created the XRP token, faced a lawsuit in California claiming it was selling unregistered securities.

Both lawsuits survived motions to dismiss.

A spokesperson said Ripple disputes the allegations and will defend against them. Tether did not respond to a request for comment.

Cryptocurrency exchanges have been another target for investors looking to recoup their losses.

Binance US was sued on June 13 by investors claiming it had falsely marketed TerraUSD as a safe asset before its collapse. And in March, investors accused Coinbase of selling 79 digital assets as unregistered securities. Read more

Binance and Coinbase have denied the allegations.

Investors are also suing celebrities who have publicly touted cryptocurrency. A lawsuit filed in Los Angeles claims reality TV star Kim Kardashian and boxing legend Floyd Mayweather Jr. engaged in a cryptocurrency pump and dump. Reps for Kardashian and Mayweather did not respond to requests for comment. Read more

LEGAL BARRIERS

A wave of lawsuits filed in 2020 against exchanges alleging they were fueling an illegal digital coin boom largely failed after judges found some of the claims were filed too late or had too little connection to the United States. .

Timing shouldn’t be an issue for new lawsuits, but cryptocurrency holders seeking to sue foreign companies in US court could still face hurdles.

Tokenholders won a default judgment in New York against Singapore-based exchange KuCoin, but dropped the case after a Singapore court failed to ask the company to provide information to enforce the judgment .

KuCoin did not respond to a request for comment.

Another potential hurdle for investors filing claims under securities or commodities laws will be showing that their tokens meet the legal definition of such assets. Some courts have ruled that certain cryptocurrencies do the trick, but the question remains open.

Cryptocurrency holders may face additional hurdles when researching exchanges. In the Coinbase lawsuit, the exchange argued that it was not a party to the transactions and that private litigants cannot enforce registration requirements.

HAVE CRYPTO HOLDERS EARNED MONEY IN COURT?

While many cryptocurrency lawsuits are ongoing, the SEC has clawed back funds for investors in a handful of digital assets through settlements.

But even after settlement, investors can face long waits and end up with less than they paid for.

Last year, blockchain company Block.one agreed to pay $27.5 million to settle the lawsuit of tokenholders alleging it violated securities law.

More than 100 token holders have filed claims worth more than $75.7 million, according to court documents. The settlement has not yet received final approval.

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Reporting by Jody Godoy; Editing by Noeleen Walder and Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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