Major crypto exchanges and projects have been hit with a torrent of class action lawsuits accusing them of selling unlicensed securities. 11 class action complaints have been filed at a federal court in Manhattan against 42 parties around the world, including Binance, Kucoin, BitMEX, and TRON, with the defendants represented by the same law firm representing the Kleiman estate in their ongoing case against Craig Wright.
When is a Utility Token Not a Utility Token?
The multiple lawsuits, filed in the US District Court for the Southern District of New York, allege that the 42 entities took advantage of US consumers’ lack of understanding of the crypto markets to sell them alleged illegal securities.
The suits involve the ever-debated topic of utility tokens, which projects issue under the pretense that the token is designed to be used on the platform and not to flip for a profit once they hit exchanges after ICO.
This ‘utility’ aspect is often the reason cited by these projects for not applying for a securities license before launching an ICO, although the past 18 months has seen this argument torn to shreds by the Securities and Exchange Commission (SEC) who have raked in billions of dollars in fines and settlements from such companies.
Lack of Understanding
The lawsuits claim that investors were not aware that what were being marketed as utility tokens were in fact considered securities by authorities, showing a lack of understanding or due diligence by the projects or the exchanges running the token sale.
The ICO/IEO market has been operating with almost complete impunity since the ICO craze of 2017, with projects preferring to beg forgiveness and pay a fine rather than ask permission and see their project halted or changed beyond recognition before it has got started.
This lawsuit, were it successful, has the potential to change the token sale landscape forever, with projects and exchanges potentially having to jump through more hoops on their way to market. Having seen how most token sales have died immediately after launch since 2017, losing investors millions in the process, this might be a very good thing indeed.