The great ICO rush of 2017 and early 2018 is over. The euphoria, the unironic cries of “When Binance?”, and the 10x returns are now a thing of the past. Epic gains and moon missions have been replaced by acrimony, recriminations and, increasingly lawsuits, both real and threatened.
Crypto Lawyer Season Is in Full Swing
One of the big selling points with initial coin offerings (ICOs) has been their inclusiveness. Almost anyone can participate. This has made for a more egalitarian process, in contrast with traditional IPOs which welcome accredited investors only. Lowering the barriers to entry has come at a cost however. Among this new wave of investors are many who lack the sense to distinguish a solid project from a dubious one, and who believe that if things go awry, they can call on their lawyer or even the SEC to ride to the rescue.
Crypto doesn’t work that way.
While ICO teams are still subject to the law, and evidence of clear criminality can and will be prosecuted, the majority of failed projects do not constitute exit scams or blatant deception; more often, a team simply fails to deliver after blowing too much of its budget on “expenses”. In such cases, the chances of successfully filing a suit are remote. The same people who ticked the Ts & Cs without reading and skimmed over the legal disclaimers in their haste to contribute ether to the next sure thing are the same ones now re-examining them in search of clauses that will entitle them to get their money back.
Bluster, Lawsuits, and Threats of Lawsuits
Security lawsuits concerning cryptocurrencies have tripled this year. To date, around a dozen ICO-related class action lawsuits have been filed including Paragon Coin, Cloud With Me, Tezos, and Latium Network. Ripple is also facing one over claims that its eponymous cryptocurrency is an unregistered security. Some naive investors seem to believe the SEC will operate as their personal army, filing on their behalf and bearing the legal costs. As co-director of the SEC’s Enforcement Division Stephanie Avakian recently explained, however, ICO cases that do not involve fraud are unlikely to feel the full force of the law.
The Telegram groups of many failed ICOs are seething with threats of legal action from enraged investors desperately seeking their tokens or ether back. Their anguish is piqued by trolls who show up to fuel the flames and savor the salt. Shopin’s ICO raised $46 million this year. Its CEO Eran Eyal has since been charged with grand larceny and fraud over a previous project, and is out on bond after being incarcerated on Rikers Island. Shopin tokens have yet to be unlocked, meaning bag-holders don’t even have their bags.
Other ICOs that have underperformed, from Polymath to Constellation DAG, are subject to the same threats from angry investors. While a handful of investors have the determination and the means to make good on their promise, the majority are too rekt to file suit, even if they knew how. Due to the multi-jurisdictional nature of cryptocurrency projects, determining where and how a case should be prosecuted is complex. Legal threats in Telegram groups come easy. Following through on them in a court of law is almost impossible.
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