US Crypto Exchanges Could Be Subject to Possible Class Action

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FOX Business Senior Correspondent Charlie Gasparino weighs in on longtime securities attorney Tom Grady launching an investigation into Coinbase, Robinhood’s crypto offerings on ‘The Claman Countdown’.

The latest Crypto headache could be a big class action lawsuit filed on behalf of retail investors against major US crypto exchanges.

Longtime securities attorney Tom Grady, known as one of the nation’s leading investment fraud lawyers, is bracing for potential litigation against the nation’s largest crypto exchanges, Coinbase, Robinhood, Kraken and others, according to a press release reviewed by FOX Business.

In the statement, Grady said he has launched an investigation into the trading of exchanges and their potential violations of state and federal securities laws by trading digital coins, the vast majority of which are considered by the SEC as unregistered securities and therefore operate in violation of federal laws. law. Grady says exchanges may have misled investors by not providing them with inappropriate disclosures about the risk of trading and owning unregistered crypto. “We believe Coinbase, Robinhood, and other exchanges broke the law, and investors who lost money buying cryptocurrency on their platforms may be entitled to recoup those losses,” Grady said in the post. the press release.

Frankfurt, Hesse, Germany – April 17, 2018: Many coins of various cryptocurrencies (iStock/Reuters)

SEC’S RULE-MAKING AGENDA IS SO OUT OF CONTROL IT’S BRINGING DEMOCRATS AND REPUBLICANS TOGETHERCoinbase, Robinhood didn’t immediately respond to a request for comment and Kraken declined to comment, but in the past, these exchanges have argued that they operate legally, and they do not facilitate exchanges of coins that have been deemed unregistered securities by the Securities and Exchange Commission.

The press release states that Grady, through his Tampa, Florida-based law firm, is also seeking clients from Coinbase, Robinhood, and other exchanges who have suffered losses buying cryptocurrencies on their platforms to share information about their investments.

The digital asset classification debate has rocked the crypto industry since the SEC began filing lawsuits against various crypto companies for offering unregistered securities in 2017. The SEC believes that the vast majority digital coins are used for pure speculation or to conduct illegal activities. such as drug dealing and money laundering, and they are separate from the underlying blockchain technology – a business transaction method still in its developmental stages that is designed to provide a cheaper payment system , safer and more efficient for consumers.

Bitcoin gold cryptocurrency trading chart on smartphone close up. (istock / iStock)

To determine if a crypto is truly an unregistered security, the SEC imposes something known as the “Howey Test,” named after a 1946 Supreme Court case that determines whether investment contracts must be registered. with the SEC. In 2020, the SEC filed charges against the executives of Ripple, a digital cross-border payments company, for selling the XRP token to help grow its platform. Last month, the SEC sued crypto exchanges Gemini and Kraken for offering unregistered securities products to clients.

Like XRP, nearly all digital coins are unregistered, opening the industry up to a sweeping regulatory crackdown if the SEC prevails in its lawsuit against Ripple. For example, SEC Chairman Gary Gensler said he believes the majority of crypto tokens are classified as securities, with the possible exception of Bitcoin, which he believes could be classified as a security. commodity because there is no centralized entity controlling the asset and the asset is created by so-called independent miners.

Ripple, for its part, argues that the sale of XRP did not violate securities laws and is fighting the SEC in federal court. A decision is expected in the coming weeks.

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Any class action lawsuit will certainly heighten the scrutiny of the trillion-dollar crypto industry that has seen a significant drop in value and been rocked by scandal. The so-called crypto winter, caused by several high-profile crypto firms filing for bankruptcy, has seen the price of Bitcoin, the most valuable cryptocurrency, drop more than 50% from its all-time high. . Wednesday’s announcement by struggling crypto bank Silvergate to liquidate its assets and shut down operations is putting even more pressure on cryptocurrency prices.

FILE PHOTO: Representations of the cryptocurrencies Bitcoin, Ethereum and DogeCoin are placed on the PC’s motherboard in this illustration taken June 29, 2021. REUTERS/Dado Ruvic/File Photo

In one of the biggest blows to the fledgling industry, the US Attorney’s Office for the Southern District of New York recently indicted former crypto superstar Sam Bankman-Fried, for allegedly running a Ponzi scheme. through its FTX crypto exchange, before its recent implosion and bankruptcy. Unlike FTX, which was privately held and operated in the Bahamas, Coinbase, the US crypto exchange, and Robinhood, a discount brokerage firm that also trades crypto, are both US-based companies and are publicly traded, so they are required to meet with the SEC. disclosure requirements.

Grady argues, however, that by facilitating transactions in digital coins that are essentially unregistered securities, exchanges are actually key players in violating securities laws.

Grady has practiced securities law for four decades, making a name for himself representing retail investors who have been taken advantage of by Wall Street firms. He is currently Chairman of the Florida State Board of Education and previously served as Commissioner of the Florida Office of Financial Regulation.

CLICK HERE TO GET THE FOX BUSINESS APP Crypto hasn’t been the subject of many class action lawsuits because most retail investors believe digital assets aren’t securities, but rather currencies like the dollar. However, Grady’s potential litigation could open the door to more lawsuits against crypto firms as the classification debate continues to unfold in Washington.

Grady, like Gensler, believes that the vast majority of crypto tokens are unregistered securities. Therefore, by offering them as investments to clients, exchanges are violating state and federal securities laws.

“This is another example of excessive litigation created and encouraged by a lack of regulatory clarity in the United States regarding digital assets,” says attorney John Deaton, who is acting as amicus curiae in the lawsuit. SEC versus Ripple. “When you have regulatory uncertainty coupled with an anti-crypto campaign by regulators, it creates a hotbed of litigation. Whether it’s white shoe defense companies representing companies being attacked by SEC regulation by enforcement policy, or bankruptcy attorneys, or in this case class action plaintiffs attorneys, we will continue to see litigation chaos in the United States, which will further drive innovation overseas .”

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