Five key crypto court cases and why they count
By Carine Lee
05:47, 1 August 2022
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.
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.
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