Class action lawsuit filed against major crypto exchanges and token projects for the sale of unregistered securities

A series of 11 different lawsuits have been filed in the Southern District of New York against various crypto exchanges and token issuers claiming they sold unregistered securities to U.S. based person. For issuers, this means they failed to comply with proper registration requirements while exchanges violated broker-dealer requirements if the tokens are deemed to be securities.

The law firm that filed the suit, Roche Cyrulnik Freedman, has been involved in other cases related to crypto including an ongoing lawsuit against Craig Wright as well as the exchange Bitfinex. The entities named in this lawsuit include HDR Trading (parent company of BitMex), KuCoin, TRON Foundation, Quantstamp, Bibox, KayDex, Status Research, Block.one, BProtocol Foundation, Civic Technologies, and Binance.

Why it matters

• Those involved in the direct or secondary sale of tokens have been operating under a regulatory grey area. While tokens do not represent direct equity in a company, if they satisfy the prongs of the Howey Test then they need to be properly regulated as an investment contract. If this is the case, those that issued and facilitated the trading of these tokens could face severe regulatory backlash.
  
• Many of the defendants are non-U.S. based which could complicate the matters as whether or not the U.S. has jurisdiction will be in question. The case could also be further delayed as a result of court slowdowns due to COVID-19.