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6 Lessons Learned From Recent Crypto Lawsuits — Market News to Know


Key Takeaways

While the crypto market used to be all the hype and carried the financial news section on its back, journalists now seem hesitant to cover its innovations, with new scams appearing left, right, and center. Many issues have also arisen from the regulatory side, with federal and state agencies catching many crypto players breaking the law. It’s a confusing landscape, but each headline teaches crypto businesses and investors to be cautious in these volatile times. Let’s review the most shocking crypto lawsuits and what insurance solutions can come to the rescue. 

1. Sanctions Violations Result In Record-Setting Fines

One of the latest companies breaking the US Treasury Department’s regulations is the crypto exchange platform Bittrex. And they’ve received sky-high fines of $24 and $29 million. Both are record-setting amounts for a virtual currency platform. 

The penalties came after the US-based platform failed to prohibit users in sanctioned jurisdictions from performing transactions — worth a total of $263 million.

And although the Treasury is coming in strong with these regulations, some are fighting back. After Tornado Cash — a decentralized platform built on Ethereum to enhance transaction privacy — entered the Treasury’s sanctions list for money laundering, two Coinbase employees sued the Department

It’s tricky with these recent laws updates, but exchange services must keep in line with fresh regulations to save headaches in the future.

2. Unregistered Offerings Probe Hurts NFTs

What’s a Bored Ape without some controversy, ey? This time, the US Securities and Exchange Commission (SEC) is investigating Yuga Labs, the parent company of the celebrity-backed Bored Ape Yacht Club NFTs. The SEC is currently probing whether these NFTs should be considered securities (investments that can be bought, sold, or traded). The company could be committing federal law violations for selling unregistered securities. 

From Bloomberg’s report, sources claimed some of Yuga Labs’ NFTs are sold like stocks, so they should be regulated as such. However, the SEC hasn’t filed any lawsuits yet, and the Web3 company remains out of the woods — for now. Meanwhile, Wall Street regulators are also investigating ApeCoin, the cryptocurrency given to Bored Ape holders. So, will Yuga Labs ever catch a break? 

When it comes to digital assets in this ever-changing industry, companies are better safe than sorry. And although the crypto market often faces pushback from insurance agencies — this doesn’t mean that no one is willing to protect your business. Specialized insurance for cryptocurrency companies exists, and it’s time to jump on the bandwagon before it’s too late.

3. Bankruptcy Records Reveal All

Celsius Network, the crypto bank that filed for bankruptcy in July this year, just disclosed a 14,000-page financial form with the names and transactions of all its users. Unfortunately, the records also revealed the transactions of Alex Mashinsky and Daniel Leon, respectively, none other than Celsius’ CEO and Chief Strategy Officer. The executives withdrew a total of $17 million in crypto before disabling withdrawals for all other users. 

Many users didn’t see the bankruptcy coming, but others knew that the company’s 18% interest rate wouldn’t be sustainable. Celsius still owes $4.7 billion to users and claims they’ll jump back with a new project called ‘Kelvin—but the situation has boiled over (pardon the pun), and the crypto market is probably tired of temperature references.

4. Failure to Disclose Crypto Promotion Results In Fines

Those promoting crypto investment opportunities without disclosing how much they are being paid and from who are breaking federal laws. Anti-touting rules declare that investors should know when publicity is unbiased or not — and some familiar faces have recently failed to adhere.

The SEC fined Kim Kardashian a rambunctious amount of money for not disclosing the details behind her promotion of EthereumMax (EMAX). The reality TV star promoted the token to more than 250 million Instagram followers without revealing she received a $250,000 payment to do so. Ultimately, she agreed to pay the SEC a $1.26 million fine and not to promote crypto assets for three years.

Similarly, the SEC also charged crypto influencer Ian Balina: He boosted Sparkster’s Initial Coin Offerings (ICO) without disclosing they had a promotional agreement and then resold his tokens without a securities registration. Balina received a 30% bonus from Sparkster on his $5 million purchase of SPRK tokens for promoting the new cryptocurrency.

The landscape is pretty muddy for crypto influencers, so it’s important to be extra careful when helping with the marketing of digital assets. A policy specifically designed for influencers could help avoid you from being next on the SEC’s hit list.

5. Register Under Securities Regulation or Pay the Fines

Ever wondered what California, Maryland, New York, Kentucky, Oklahoma, Washington, South Carolina, and Vermont have in common? All eight states have issued cease-and-desist notices against Nexo, the cryptocurrency platform with a Ponzi scheme-like offering of 36% interest to retail investors.

While Nexo maintains that they meticulously adhered to all applicable regulations, it is important to note that they had never officially registered their securities with the SEC or any state regulators. Consequently, this oversight placed them in violation of both state and federal laws, an issue of utmost concern in the context of the investment memo sequoia.

Ethereum is also at risk as, according to the SEC, their recent switch from proof-of-work to proof-of-stake might qualify them as a security asset. This would mean that any ETH exchange would fall under SEC regulations and must be registered to be legal.

This crypto news delivers yet another blow to the community, underscoring the increasingly constricted landscape. The key takeaway for crypto companies is the imperative need to stay abreast of the latest regulatory guidelines, particularly those governing ICO insurance, to steer clear of substantial fines.

6. Allowing Illegal Trading Will Land Leaders In Deep Trouble

As regulators keep threading the webs of crypto laws, some companies that were once legal might suddenly start committing illegal activities. 

The Commodity Futures Trading Commission (CFTC) just fined bZeroX — a popular decentralized autonomous organization (DAO), its founders and successor company Ooki —  $250,000 for supposed illegal trading. According to the CFTC, the blockchain projects allowed leverage and margin trading of crypto and didn’t follow Know Your Customer (KYC) security procedures.

This move could unleash a chain reaction of fines as DAOs could start needing regulation like all other traditional trading platforms registered with the CFTC.

bZeroX’s case demonstrates that no one in the crypto market is secure under these inconsistent regulations. Being prepared with innovative insurance solutions can make a difference.

Understanding the details of what coverage your crypto company needs can be confusing. Founder Shield specializes in knowing your industry’s risks to ensure you have adequate protection.

Want to know more about cyber liability insurance and blockchain shield? Please contact us at info@foundershield.com or create an account here to get started on a quote.

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