The Southern District of New York has 11 lawsuits filed against cryptographic firms, including Binance, Tron Foundation and KuCoin, on charges of securities law violations.
Eleven new class actions were filed on April 3 with the Federal District Court for the Southern District of New York by the law firm Roche Freedman. Some of the defendants include Binance, Civic, BProtocol, Status, Block.one, KayDex, Quantstamp, BiBox, TRON Foundation, KuCoin, HDR Global Trading and the CEOs of several firms including Brendan Blumer, Dan Larimer, Vinny Lingham and Changpeng Zhao.
The plaintiffs are Chase Williams, Alexander Clifford and Eric Lee. The complaints allege that firms have violated U.S. federal securities laws by issuing token shares and/or illegally selling them to U.S. residents. Complaints against executives fall under the responsibility of the "controlling party" and its obligation to enforce the securities laws.
Claims have been filed against 11 companies, most of which are outside the United States. In summary, the key component of the lawsuits is charges of unregistered token issuance and/or sale to U.S. investors. In addition, stock exchanges may be responsible for selling securities as unlicensed broker-dealers if the tokens in question are eventually identified as securities.
For example, the lawsuit against KuCoin Exchange states that the complaint is filed on behalf of investors who have purchased ten digital tokens on the market. KuCoin has been selling tokens since September 2017 without having registered a broker-dealer or exchange license. The list of tokens sold includes EOS, SNT, QSP, KNC, TRX, LEND, ELF, CVC and TOMO.
If a court finds that any of these tokens is a security sold to KuCoin without authorization, the exchange may incur losses and be subject to regulatory scrutiny. Similar charges have been brought against Binance that all listing agreements that the exchange has entered into with token issuers have been implemented in violation of the Exchange Act and without registration as a broker-dealer.
The lawsuit against Tron Foundation challenges the similarity of TRX to BTC and claims that the token was issued and controlled by the defendants in a fully centralised manner and represents a security:
"… the creation of TRX tokens thus took place in a centralized process, as opposed to Bitcoin and Etherium. This, however, was not evident when selling tokens to investors. Thus, the buyers were misled to believe that TRX is not a security".
Recently, the New York court has banned the distribution of Gram tokens to non-residents of the United States. The court rejected Telegram's request, in which the company asked to clarify whether the ban on the distribution of Gram tokens to investors from other countries that are not covered by the U.S. securities laws.
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