2023 Crypto Lawsuits: An Annual Recap and Evaluation

2023 was a challenging year for the cryptocurrency industry as regulatory agencies, including the SEC and CFTC, took significant actions against leading exchanges such as Binance and Coinbase. These actions focused on allegations of unregistered trading platforms, offering unregistered securities, and inadequate disclosure of risks to investors.

The volatility of the cryptocurrency market was on full display in 2023, with numerous legal developments impacting key players. This report provides a detailed analysis of these legal outcomes and their potential implications for the future of cryptocurrency regulation and market dynamics.

Ongoing Legal Proceedings
1.
Nexo, a cryptocurrency lender, challenged the Cayman Islands Regulator’s decision to decline its VASP registration. Interestingly, just days before this legal move, Bulgarian authorities raided Nexo’s offices and charged four individuals with money laundering. Nexo aims to reverse the regulator’s decision and continue offering crypto services to Cayman Islands residents.

2.
The SEC accused Avraham Eisenberg of orchestrating an attack on Mango Markets using the MNGO token, which was allegedly sold as a security. Eisenberg is believed to have misappropriated around $116 million in crypto assets from Mango Markets in October 2022.

3.
The SEC charged Paxos Trust Co., alleging violations of investor protection laws and claiming that Binance USD (BUSD) is an unregistered security. Paxos, at the time, was the third-largest stablecoin with a market cap of $16 billion. In response, Binance founder Changpeng Zhao instructed Paxos to halt the creation of new BUSD tokens.

4.
The SEC charged Singapore-based Terraform Labs PTE Ltd. and CEO Do Hyeong Kwon with producing a multi-billion-dollar crypto asset securities fraud. According to the SEC’s accusations, Terraform and Kwon raised billions of dollars from investors through unregistered transactions involving crypto asset securities.

5.
The New York Attorney General filed a lawsuit against CoinEx, alleging that the exchange operated without registering as a securities and commodities broker-dealer in the state. The lawsuit accuses CoinEx of persistent fraudulent activities and violations of New York’s stringent Martin Act.

6.
The SEC filed a complaint against Justin Sun, the founder of three crypto companies, including TRON. The agency also charged eight celebrities, including Lindsay Lohan and Jake Paul, for illegally promoting Sun’s cryptocurrencies. Several celebrities agreed to pay $400,000 to settle the charges.

7.
The SEC charged the crypto asset trading platform Beaxy and its executives for failing to register as a national securities exchange, broker, and clearing agency. The SEC also accused the founder of Beaxy, Artak Hamazaspyan, of raising $8 million in an unregistered offering and misappropriating at least $900,000 for personal use.

8.
The SEC sued Genesis Global Capital and Gemini Trust Company for the unregistered offer and sale of securities through the Gemini Earn crypto asset lending program. Genesis filed for Chapter 11 bankruptcy protection in New York following significant industry collapses, including Genesis Asia Pacific.

9.
Celsius Network filed a lawsuit against liquid staking platform StakeHound for allegedly failing to return $150 million worth of tokens owned by Celsius.

10.
The SEC sued Hex founder Richard Heart and his entities for conducting unregistered offerings of crypto asset securities that raised over $1 billion. Heart and PulseChain were also charged with fraud for misappropriating funds for personal use, including luxury goods.

11.
A lawsuit was filed accusing 18 prominent VC firms, including Temasek and Softbank, of aiding and abetting the FTX fraud. The suit alleges that these firms actively participated in and conspired with FTX to commit multi-billion-dollar frauds.

12.
A class action lawsuit was launched against Atomic Wallet following a major breach that resulted in $100 million in losses. The lawsuit accuses Atomic Wallet of failing to implement adequate security measures to protect user funds.

13.
The SEC accused Impact Theory, a media and entertainment company, of running an unregistered offering of crypto asset securities in the form of NFTs, raising around $30 million from investors.

14.
The SEC took legal action against Stoner Cats 2 LLC for conducting an unregistered offering of crypto asset securities in the form of NFTs. The SEC claimed that the NFTs sold by the company were advertised as having the potential for future sales at a higher price.

15.
A class-action lawsuit was filed against Binance.US and its CEO, Changpeng Zhao, accusing them of violating antitrust laws by attempting to monopolize the cryptocurrency market through unfair competition against FTX.

16.
The CFTC charged Stephen Ehrlich, the former CEO of Voyager Digital, with fraud and registration violations related to the digital asset platform. Ehrlich and Voyager misled customers by promoting the platform as a safe haven for high-yield returns while taking reckless risks with assets.

17.
Gemini accused bankrupt crypto lender Genesis of harming Earn users and hindering the recovery of digital assets. Gemini claimed that Genesis owed it $1.6 billion in collateral under a security agreement.

18.
The SEC sued SafeMoon LLC and its creators for perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security, SafeMoon. The defendants allegedly misappropriated investor funds for personal use.

19.
The SEC charged Kraken with facilitating the buying and selling of crypto asset securities without registering its functions with the SEC. Kraken disagreed with the SEC’s stance and argued that digital assets bought and sold on trading platforms were not securities transactions.

20.
The Department of Justice sued Binance and its CEO for money laundering, unlicensed money transmission, and criminal sanctions violations. Binance admitted to breaching anti-money laundering, unlicensed money transmitting, and sanctions violations and agreed to pay over $4 billion as part of a settlement with the DOJ.

As the cryptocurrency industry continues to grow, regulatory oversight becomes increasingly important to protect investors and prevent financial crimes. Robust regulations are necessary to curb fraud, manipulation, and ensure adherence to anti-money laundering protocols.