Updates in 2022
Suing cryptocurrency exchanges is a legitimate option for those who have been wronged by the exchange. However, it is important to understand what can and cannot be claimed against cryptocurrency exchanges and which jurisdictions are appropriate. First of all, it is important to understand the difference between centralized and decentralized exchanges and what the appropriate claims are against each.
A number of major cryptocurrency exchanges are currently facing lawsuits from investors. Binance is one of the most popular exchanges and is under fire from a group of investors who are claiming that their trading experience was ruined by the exchange’s “anomalies” in the functioning of its trading platform. The alleged anomalies resulted in the loss of investors’ money on cryptocurrencies called futures. These futures are derivative financial instruments that allow traders to purchase or sell cryptocurrencies at a predetermined price and date in the future. The complaint alleges that Binance’s compensation offers are “pitiful,” and has given the company until July 12 to come up with a fair compensation offer. If the exchange fails to comply with the terms of the suit, the investors have threatened to seek regulatory assistance in the European Union and in Switzerland.
Crypto lawsuits often touch on commercial issues, such as business failures, and even celebrity endorsements. Some celebrities have become entangled in private legal actions, including Kim Kardashian and Floyd Mayweather Jr. In one case, a group of plaintiffs alleges that Kardashian and Floyd Mayweather Jr. made false and misleading statements on social media about their cryptocurrencies. Another case filed against Ripple is based on the fact that the company raised over $1.3 billion through an unregistered offering.
Coinbase is another crypto exchange facing multiple lawsuits from investors and users.
The lawsuits allege that the exchange violated federal securities laws and California laws by allowing U.S. persons to trade unregistered securities and misinformed investors about its public listing last year. The exchange is trying to settle both lawsuits through arbitration. The lead plaintiff is a Georgia resident, but the attorneys contend that there could be hundreds more victims.
Another example of the SEC suing crypto exchanges is the recent case against Bitfinex and EtherDelta. Both companies were sued after their exchanges failed to disclose the risks associated with cryptocurrencies. In both cases, the plaintiffs were able to recover more than $150 million from their investment.
BitMEX is currently being investigated by the US Federal Trade Commission for violating the Commodity Exchange Act. They are also accused of accepting orders and funds on the exchange without proper authorization. They have been ordered to pay $10 million in civil penalties. The exchange has also appoint new operating co-chiefs. As for HKEX, the company’s president, Calvin Tai, is set to step down at the end of May.
In the US, cryptocurrency exchanges are regulated by federal and state laws. As long as the exchange is licensed by the state, it is subject to anti-money-laundering and Know Your Customer requirements. While these regulations are far from comprehensive, they may still be the focus of legal action against crypto exchanges.
Currently, a number of crypto exchanges face lawsuits from investors seeking to recover money lost through the exchange. A recent case involving Voyager, which took $5 billion in user funds, is a prime example of this. The case is the first of its kind to be filed in the U.S., and the SEC has said it is investigating both creators of NFTs and the exchanges that trade them.
