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New Crypto Lawsuits…Just Desserts for ICOs or Legal Obstacles to Claims?

While most of the world was locked down, the preverbal shoe (litigation) finally dropped on Crypto companies that raised money through the sale of digital assets which are alleged to be illegal, unregistered securities offerings. That is, unless the plaintiffs are time-barred under the statute of limitation.

On Friday April 3, 2020, in what may someday be known as The ICO Bust-up, the Digital Asset Dust-up, the Great Strike, (or some other amalgamation of words weighted with historic import) investors filed 11 lawsuits in the Southern District of New York against a broad array of issuers and exchanges for allegedly offering and selling unregistered securities in violation of both federal and state securities laws during the ICO boom of 2017 and 2018.

These lawsuits, filed by two high-profile plaintiff litigation law firms, seek billions of dollars in damages against a number of well-known crypto-companies. The lawsuits accuse these issuers and exchanges of selling digital assets without (i) registering with federal or state regulators or (ii) an applicable registration exemption. The cases also contend that crypto-trading platforms benefited financially from listing these illegally offered securities. For example, a lawsuit against one crypto-trading platform, alleges that the platform collected cash fees from issuers, sometimes exceeding $1 million, to list their digital assets.  The investors also allege that, in addition to selling unregistered securities, crypto-trading platforms manipulated the cryptocurrency markets for their own benefit.

These lawsuits highlight the dangers to issuers and exchanges in the sale of unregistered digital assets, particularly where the disclosures may be misleading or inadequate. While the suits are in their infancy, and the defendants have not yet raised any defenses, some argue these suits were filed outside of the applicable statute of limitations period.  Ordinarily, the statute of limitations is one year from discovery of the violation but no more than 3 years after the offering for claims under the 1933 Securities Act.  However, because the structure of many offerings included a long delay from the time that the alleged securities were offered until the digital assets were issued, plaintiffs are likely to argue that the three year limitations period should begin with the issuance of the digital assets rather than the offer date, based on a doctrine called “integration.”

Expect the defense to vigorously oppose the complaints on both procedural and meritorious grounds.  While the outcome of these litigations, as with any, are not certain, given the substantial number of ICOs and issuances in the last 3 years, one thing is certain: the industry will be watching these cases closely.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 104


About this Author

Jason A. Nagi, Polsinelli, Distressed note purchases lawyer, Real estate matters attorney

Jason Nagi helps clients find the most efficient route to their desired result and clients have relied on him to get them what they need – in and out of the courtroom – for more than a decade.

He has significant experience representing parties involved in the following matters:

  • Foreclosing lenders realizing on their collateral

  • Distressed note purchases

  • Real estate

  • Related bankruptcy and out-of-court...


Mark Olthoff looks for solutions. Whether it is help resolving a commercial dispute, responding to a financial services claim, or counseling on a corporate governance issue, Mark’s experience and knowledge guides clients to the best possible result. He has extensive litigation experience with class actions, consumer protection, banking and securities laws, and all manner of business disputes. Mark's national practice includes actions involving FDCPA, RICO, FCRA, TILA and other federal and state statutes.  Mark represents numerous financial institutions and is an author and frequent speaker on subjects such as piercing the corporate veil and legal ethics. He is also an appointed member of the Missouri Supreme Court Disciplinary Committee since 2009.


Richard Levin brings his experience as a senior legal and compliance officer on Wall Street and in London to bear in advising clients on corporate, securities and regulatory issues. A problem-solver by nature, his practice focuses on helping financial services and technology (FinTech) clients identify and address regulatory issues as they build their businesses.  

The FinTech sector is experiencing rapid changes that are producing innovative new technologies: digital currencies, blockchain technology, peer to peer lending, robo advisors, crowdfunding portals, and...

Stephen A. Rutenberg Shareholder Polsinelli New York Bankruptcy and Financial Restructuring Bankruptcy Litigation Capital Markets ,Commercial Lending ,Debt and Claims Trading, Financial Services, Insolvency, Financial Technology FinTech and Regulation

Stephen Rutenberg’s practice focuses on the intersection of special situations investing and FinTech including cryptocurrency and blockchain technology. 

A significant component of Stephen’s practice relates to his work in the distressed debt market, representing clients in the purchase and sale of loans and securities of distressed and bankrupt companies. Recent representations include advising on the purchase, sale and financing of bankruptcy trade claims in several major chapter 11 cases, including Lehman Brothers, and the MF Global and Icelandic bank liquidations. He works with...