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Five key crypto court cases and why they count

By Carine Lee

05:47, 1 August 2022

Mallet and scale representing justice
From Chapter 11 to securities law crypto firms are spending a lot of time in the courthouse – Photo: Shutterstock

The cryptosphere has been in the courts recently with cases ranging from blockchain Solana (SOL), crypto hedge fund Three Arrows Capital to crypto lender Celsius Network going before a judge.

Here are five crypto court cases that caught our journalist’s attention:

Three Arrows Capital (3AC)

The Singapore-based crypto hedge fund at its peak managed around $18b in crypto assets, invested in tokens including ETH and SOL.

The firm suffered terrible losses because it held a significant position in LUNA when the Terra blockchain collapsed, worth roughly $560m at its peak.

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ETH to US dollar

A leaked court document filed with the Singapore High Court, stated that 3AC owes over $3bn, its biggest creditor being Genesis with $2.3bn loaned.

Founder bought a luxury yacht

Creditors were late to realise that 3AC was collapsing as insolvency was only reported in mid June.

Co-founder Zhu Su used borrowed money to make luxury purchases including a yacht and property which was likely used to indicate creditworthiness of 3AC.

The co-founders went MIA but recently broke their silence by saying they will be moving 3AC to Dubai to see whether the firm has a future.

3AC’s default on debts caused a knock on impact on both the Celsius Network and Voyager Digital.

Solana (SOL)

In California, a SOL investor filed a suit against Solana's team and its venture capitalist backer Multicoin Capital for unlawfully making ‘enormous profits’ through the sale of the tokens to retail investors.

SOL to US dollar

The suit claims that the sale of SOL securities constituted “the sale of unregistered securities under controlling federal law. ”

It also says that from April 2020 the defendants spent “vast sums of money promoting SOL securities throughout the United States.”

SOL’s value peaked at $258 per token with a market capitalization of more than $77b on 5 Nov, 2021.

The plaintiff also argued that selling SOL violates rules around registered securities.

SOL class action

“The defendants made enormous profits through the sale of SOL securities to retail investors in the United States,” according to the suit which added that investors have suffered enormous losses.”

Rosen Law Firm is calling on purchasers of SOL tokens between 24 March, 2020 and now to join the class-action.

LBRY

The blockchain start-up is at the centre of a dispute with the US Securities and Exchange Commission (SEC) over its native token, LBC.

US regulators have argued the offering of LBC represents a sale of unregistered securities.

SOL/USD

181.07 Price
-1.890% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.2652

ETH/USD

3,449.98 Price
-1.630% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

XRP/USD

0.61 Price
+1.890% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

DOGE/USD

0.14 Price
-2.080% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

According to its CEO Jeremy Kauffman, the SEC implies that anyone selling cryptos, ETH included or other altcoins such as ADA or MATIC, in the US is breaking the law.

Are crypto tokens securities?

The SEC filed a complaint against LBRY at the Federal Court in New Hampshire for failing to register their offering last March.

The SEC v LBRY ruling could have huge implications for the industry, as it could set precedent for potential future, as well as ongoing legal challenges.

The judge in the case asked an SEC representative whether the LBC token would be seen as a security if the LBRY team did not develop it.

“And the answer was still yes,” Kauffman said.

MATIC to US dollar

Ripple 

The Ripple payment protocol has maintained that its XRP coins do not comprise securities.

US Magistrate Judge Sarah Netburn agreed as she has denied the SEC’s motion to prevent its former official’s, William Hinman, views on ETH From being used as evidence.

Ripple argued that Hinman’s comments on ETH prove that point.

Hinman contended in 2018 that fundraising efforts related to the creation of ETH did not constitute securities transactions.

SEC previously sued Ripple

In 2020, the SEC sued Ripple Labs, and its executives Brad Garlinghouse and Christian Larsen.

The issue centred on allegations that the company raised more than $1.3bn “through an unregistered, ongoing digital asset securities offering.”

This time US District Court Judge Analisa Torres ruled that the SEC had plausibly argued that the XRP digital coin amounted to the unregistered sale of securities.

XRP to US dollar

Celsius Network 

Celsius has a $1.2b hole in its balance sheet, according to a recent court filing from the crypto lender’s advisory partner Kirkland & Ellis.

The crypto lender filed for voluntary bankruptcy in the US citing ‘extreme’ market conditions, leaving its 1.7 million customers unable to redeem their assets.

As a result the network’s native token CEL saw a series of wild price gyrations as investors confidence ebbed and waned. 

CEL to US dollar

Celsius has filed a series of customary motions with the court to allow the company to ensure a smooth transition into Chapter 11 and has $167m in cash on hand, according to a statement.

The decision to file for bankruptcy will stabilize the Celsius’ business and protect its customers, its CEO Alex Mashinsky said in the statement.

Markets in this article

ADA/USD
Cardano / USD
0.42960 USD
-0.00797 -1.840%
ETH/USD
Ethereum / USD
3449.98 USD
-56.93 -1.630%
MATIC/USD
MATIC/USD
0.55298 USD
-0.01395 -2.560%
SOL/USD
Solana / USD
181.0737 USD
-3.4525 -1.890%
XRP/USD
Ripple / USD
0.61225 USD
0.01125 +1.890%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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