November 17 (Reuters) – A lawsuit filed by FTX investors in the United States is the first of many to be brought over billions of dollars in losses on cryptocurrency exchanges, although the cases including testing US securities law. to FTX products, experts say.
The lawsuit, filed in Miami federal court Tuesday, claims FTX founder Sam Bankman-Fried and celebrities including NFL quarterback Tom Brady and basketball Hall of Famer Shaquille O’Neal, engaged in fraudulent business activities by promoting unregistered funds.
Although some courts have ruled that some cryptocurrencies fit the legal definition of funds, the issue remains.
The case for FTX, which is based in the Bahamas, will be more difficult because the US securities laws are generally related to domestic transactions, said Yuliya Guseva, a professor who leads fintech and blockchain research program at Rutgers Law School.
“It’s more complicated than your plain vanilla crypto exchange story,” he said.
Representatives for Bankman-Fried, O’Neal and Brady did not respond to requests for comment about the lawsuit.
FTX filed for bankruptcy on November 11 and is facing an investigation by US authorities. Sources told Reuters that $10 billion of client assets were moved from FTX to Bankman-Fried’s brokerage firm Alameda Research, and that more than $1 billion of client assets are lost
Tuesday’s lawsuit, a proposed class action against FTX profit investors in the United States, alleges that the accounts were unregistered funds because they used investors’ pooled funds to doing the work that resulted in the returns received from the investors.
It’s an open question whether U.S. securities laws will apply to leveraged crypto accounts like those offered by FTX.
The US Securities and Exchange Commission recently declared that other leveraged accounts are unregistered funds. Investors have filed similar lawsuits against Voyager Digital Ltd and Celsius Network over their crypto wallets, but the jury has yet to rule on those claims.
The lawsuit filed Tuesday did not name FTX as a defendant but individuals.
Other investors are likely to file more lawsuits as the details of FTX’s collapse become clear.
Guseva said, the “wave” of the lawsuit is the “expected result of such a big problem.”
FTX’s new CEO, John J. Ray III, said in bankruptcy filings Thursday that the company’s situation was “unprecedented” and included “failed regulatory compliance.” business.”
Cases against FTX and related companies will be suspended during bankruptcy proceedings, but cases against individuals who have not filed for bankruptcy will be allowed to move forward, Guseva said.
Several law firms have said they are considering filing claims against investors in FTX Token, or FTT, an exchange-linked cryptocurrency whose value has dropped from $25 per token. to less than $2 after the FTX crisis.
The new lawsuits may target prominent promoters of FTX crypto products.
Tuesday’s indictment alleges these promoters violated Florida consumer protection law by failing to disclose what they were paid to endorse the company.
Investors have similar claims to reality TV star Kim Kardashian for promoting EthereumMax tokens. The judge has yet to decide if it can go forward.
Kardashian has argued that the lawsuit should be dismissed because the compensation information does not affect investors in the award.
He settled similar claims earlier this year with the SEC for $1.26 million without admitting wrongdoing.
Future investor lawsuits over FTX’s downgrades are likely to raise claims other than safety registration and consumer protection violations, the plaintiffs’ attorneys said.
Sean Masson, an attorney at the Scott+Scott law firm who is representing investors in the case against Kardashian, said there may be a market manipulation claim based on Bankman-Fried’s actions in Alameda.
Masson did not comment. Market manipulation is when a trader or company tries to secretly move or maintain the market price of a security or commodity.
“We think that what has happened so far is just a glimpse of what really happened,” he said.
Jody Godoy comments in New York; Edited by Noeleen Walder and Matthew Lewis
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