The cryptocurrency industry is still in its infancy compared to other financial sectors, with real widespread interest in crypto coins, and crypto exchanges only peaking in the last few years. Consequently, regulation and legal control of crypto are still debated, and there is a public perception that lots of crypto-related crimes go unpunished.
But is it? By looking into the crypto lawsuits brought by both the SEC and other class action suits, we have been able to shine a light on cryptocurrency lawsuits in the United States over the past half-decade. In this article, we have discovered the most common type of crypto lawsuits, the companies, and individuals involved in lawsuits, and which years have seen the most lawsuits filed.
The Total Number of Crypto Lawsuits
A total of 105 cryptocurrency lawsuits have been filed with the SEC since 2018. The number of lawsuits has been steadily increasing with a record 41 lawsuits filed in 2022 alone. Here are the years with the most number of crypto exchange or related lawsuits since 2018.
The previous year of 2022 had the most crypto-related lawsuits, with a total of 41 in America in 2022. 19 of these were filed by the Securities and Exchange Commission (SEC) and 22 came in the form of class action securities lawsuits. A prominent case in October saw the SEC charge superstar celebrity Kim Kardashian with promoting EthereumMax, there are over 50,000 news articles about the case according to Google News.
Another major scandal occurred in December following the collapse of the FTX trading platform. The former CEO Sam Bankman-Fried is currently on $250 million bail whilst he faces various charges that could result in a maximum sentence of 115 years in prison (Bankman-Fried has pled not guilty to all charges). This developing saga could become the biggest case in the history of cryptocurrency law and has already garnered great interest online with commentators voicing various opinions and conspiracy theories around the case.
Unlike in 2022, cryptocurrency was booming back in 2020. The value of Bitcoin (the biggest cryptocurrency) rose from $7,175 on January 1st to $28,985 on New Year's Eve, an increase of over 300%. This increased interest in crypto due to the boom also saw an increase in the number of crypto lawsuits in America. There were 34 in total, 13 more than the year before, which is an increase of 61.9%.
The SEC launched a few high-profile suits, one of which was against John McAfee, the late businessman who was charged with non-disclosure of payments when promoting a crypto product. Another lawsuit was brought against Binance, a popular crypto trading exchange that was already the biggest in the world in 2020, the case was eventually dismissed in 2022.
2018 was the first year looked at in our five-year study of crypto-related lawsuits. Despite crypto usage being far less widespread than in 2021, there were two more lawsuits brought than three years earlier. A total of 30 SEC and class action lawsuits occurred in the United States, with a slight majority (16) being filed by the SEC.
A major case brought by the SEC in 2018 was against Paragon Coin inc, a bankrupt cryptocurrency in 2020. A statement by the Paragon team in 2020 stated that “our goal was to build a much-needed decentralized solution for the cannabis industry, however, our plans were impossible to achieve due to several legal mistakes.” The legal mistake in question was an unregistered initial coin offering (ICO) of its digital tokens, which raised approximately $12 million from investors.
Fluctuation In The Number of Crypto Lawsuits
Between 2018 and 2022 crypto lawsuits have increased by over 40%, with 30 lawsuits filed in 2018 compared to 41 in 2022. However, there has not been a year-on-year increase, and in some years the number of lawsuits has actually decreased.
In 2019, there was a 30% decrease as the number of lawsuits dropped from 30 to 21. This was followed by a dramatic increase of just under 62%, to 34 cases in 2020, before another drop to 28 in 2021. Finally, there was another increase (this time of over 46%) in 2022, with 13 more cases than in 2021.
Most Common Type of Crypto Lawsuits
Here are the most popular type of crypto lawsuits that have occurred since 2018.
1. Unregistered offerings of crypto coins, and other unregistered crypto assets (53 lawsuits)
By far the most common issue in crypto lawsuits filed by the SEC over the past half-decade was related to unregistered crypto assets or offerings. In fact, almost half of all lawsuits are related to this type of crime. This is because the SEC believes that “of the nearly 10,000 tokens in the market, the vast majority are securities”, which means that they would be subject to US securities laws (including regulation and registration of crypto assets), and consequently the SEC see most of the crypto industry to be operating illegally.
2. Initial coin offering fraud (12 lawsuits)
An initial coin offering (ICO) is a type of funding for cryptocurrencies, the currency is sold to investors in the form of tokens or coins. Once enough money has been raised by the ICO, the cryptocurrency launches in full. However, they don’t often work that way as the unregulated nature of ICOs (compared to sourcing startup funding from banks or venture capitalists) leads to a large number of cryptocurrency scams and fraud.
In an ICO scam, a coin will be offered without the intention of ever using the investors’ money on the coin, instead, the fraudsters take the investors’ money for their own. In the past five years, the SEC has filed 12 lawsuits in relation to fraudulent ICOs. There are many examples of cryptos that have failed shortly after the ICO and are also referred to as a 'rug pull'.
3. Stealing investor funds and defrauding investors (10 lawsuits)
In a similar fashion to ICO fraud, the third most common lawsuit topic filed by the SEC was in regard to stealing investor funds and defrauding investors. This can come in many other forms, such as simple theft of investment funds or offering a fake or misleading product.
4. Non-disclosure of payment for promotion of crypto (8 lawsuits)
Non-disclosure of payment for the promotion of crypto products is one of the most infamous cryptocurrency-related lawsuits, as they often involve celebrities. Cryptocurrency is an industry worth billions of dollars, and until 2022 had been booming over the past five years. As a result, many high-profile celebrities wanted a slice of the pie, similarly, cryptocurrency companies gained more investors as a result of celebrity endorsement.
The infringement on the law occurs when celebrities promote a crypto asset without disclosing that the cryptocurrency company paid them to do so. Famous examples include the previously mentioned Kim Kardashian case, with the reality tv star and supermodel being paid to promote EthereumMax. Other celebrities charged with similar offenses include boxing great Floyd ‘Money’ Mayweather, action film star Steven Seagal, and tech entrepreneur and businessman John McAfee, who was accused of promoting crypto pump and dumps.
Top 10 Most Common Crypto Lawsuits
To summarize our research, the top lawsuits in the cryptocurrency industry are:
- Unregistered crypto asset, unregistered crypto offering, or unregistered ICO (53 lawsuits)
- Initial coin offering fraud (12 lawsuits)
- Stealing investor funds or defrauding investors (10 lawsuits)
- Non-disclosure of payment for promotion of crypto (8 lawsuits)
- Making false and misleading statements about a crypto product (5 lawsuits)
- Securities fraud (5 lawsuits)
- Manipulating trading volume and price (4 lawsuits)
- Crypto Ponzi schemes (3 lawsuits)
- Pump and dump scheme (2 lawsuits)
- Promoting a fake company (1 lawsuit)
- Trading ahead of announcements regarding cryptocurrency (1 lawsuit)
- Failure to register offers and sales of crypto products (1 lawsuit)
- Falsifying company revenue (1 lawsuit)
- Pyramid scheme fraud (1 lawsuit)
The number of crypto lawsuits in the USA over the past five years was found using SEC lawsuits and Securities Class action Suits from Stanford law. These were combined to find the total number for each year. (Other crypto-related lawsuits might exist but the data could only be collected for SEC and class action security suits).
We recorded the years that the suits were filed to discover which years had the most suits. Just using the SEC suits we discovered the topic of the lawsuits (if suits fit more than one category they were counted twice), we also recorded the companies involved in these suits.