Lawsuits Involving Cryptocurrency Hit All-Time High

Lex Machina, a legal analytics platform, announced Sept. 11 the release of its 2018 securities litigation report that showcases recent trends and insights from its database of over 15,000 securities cases litigated in federal district court since 2009. The new report reveals the first two quarters of 2018 saw a significant rise in the number of securities cases relating to cryptocurrencies, such as bitcoin.

According to the report, the number of cases mentioning bitcoin or blockchain in all of 2017 amounted to a total of 15, but in the first half of 2018 alone, the figure rose to 45. Among its key findings, the report reveals that during the 18 months following the nomination of Jay Clayton as SEC chairman in January 2017, securities case filings were at an all-time high (2,622 cases — a 60 percent increase over the preceding 18 months).

"Securities lawsuits filed over cryptocurrencies or bitcoin have tripled so far this year as SEC chairman Jay Clayton announced a crackdown on that industry," according to the National Law Journal. "The SEC, which has vowed to scrutinize cryptocurrencies and initial coin offerings, was responsible for 30 percent of the cases filed in 2018, that’s the second-most popular filer of such cases, topped only by the law firm Levi & Korsinsky," it added, quoting Laura Hopkins, a legal data expert at Lex Machina.

The increase in the number of cases seems to have also coincided with the fall in the price of bitcoin and other cryptocurrencies from their record highs toward the end of 2017. Specifically, there were only seven cases relating to bitcoin or cryptocurrency in the fourth quarter of last year but that number tripled in this year’s first quarter, according to the report.

Among the high-profile firms in the cryptocurrency space, San Francisco-based blockchain startup Ripple Labs, and Bitconnect, described as a high-yield investment program, were among the companies facing lawsuits in the U.S.

Recently, Ripple Labs reached a settlement over a lawsuit brought against it by enterprise blockchain startup R3. The legal battle started when R3 sued Ripple in September 2017, after a partnership deal between the two sides fell apart. The deal allegedly arranged for R3 to have the right to buy 5 billion XRP tokens, at a price of $0.0085 per token, till the end of 2019, in return for R3 promoting Ripple's blockchain technology to a number of banks. Both sides accused each other of violating the agreement. At the beginning of 2018, when XRP tokens were trading at nearly $4 per unit, the value of the tokens owned by R3 amounted to almost $20 billion.

In the case of Bitconnect, the cryptocurrency was suspected of being a Ponzi scheme. Bitconnect said it would refund all outstanding loans in form of BCC (token name). However, the cryptocurrency's market price declined to less than $10, making the payments worthless. In January, BitConnect announced it would shut down its cryptocurrency exchange and lending operation after regulators from Texas and North Carolina issued a cease and desist order against it.