On April 4th, 2020, major crypto exchanges were pegged with 11 class action complaints at a federal court in Manhattan, New York.

The collective suit, filed by law firms Roche Cyrulnik Freedman and Selendy & Gay PLLC on behalf of crypto investors, targets 42 defendants operating in many countries, including China, Israel, Switzerland, U.S, Japan, among many others.

The legal action alleges that the defendants violated federal securities laws and misled investors into buying unregistered digital assets.

The defendants include crypto issuers and exchanges, including KuCoin, BitMEX, Bprotocol, Status, Block.one, Civic, and Binance. The class-action lawsuit specifically names executives like Block.one CTO Dan Larimer and Binance CEO Changpeng Zhao.

Philippe Selendy, a partner at the law firm Selendy & Gay, remarked:

“Not unlike the mortgage crisis that led to the Great Recession, the alleged pattern of misconduct by exchanges and issuers yielded billions in profits for wrongdoers through a basic betrayal of public trust.”

The case mirrors the Securities Exchange Commission’s (SEC) insistence that the crypto-financial products must follow traditional securities rules and comes as part of a bigger regulatory and legal crackdown in the growing cryptocurrency industry.

Exchanges Among the 11 Crypto Companies Accused Of Selling Unregistered Securities

The 11 lawsuits all have one theme in common: they all allege that the token issuers took advantage of the investors’ lack of understanding and awareness of how cryptocurrencies work, and they sold these purported illegal securities to U.S citizens.

The suits claim that the crypto companies marketed their digital tokens as so-called utility tokens, which they claimed did not need to be registered as securities.

Some of the companies compared their tokens to Bitcoin and Ethereum, which are not considered securities. It was not apparent to the investors that these tokens needed to be registered with the U.S Securities and Exchange Commission, according to the lawsuits.

One of the law firms leading the litigation, Roche Cyrulnik Freedman, has been involved with two other crypto-related lawsuits against Tether and the self-proclaimed Bitcoin inventor Craig Wright’s court case.

Regulatory Status of Cryptocurrencies Remains Murky

The regulatory position of crypto-asset offerings largely remains foggy across the world. That said, the Securities Exchange Commission (SEC) has continually warned that securities regulation laws might apply to certain digital tokens depending on their specific characteristics.

Earlier this year, Hester Peirce, a renowned SEC regulator, suggested that exchanges be given a ‘safe harbor’ to ICOs so that some crypto tokens are not treated as securities.

Peirce proposed a 3-year grace period for crypto startups to refine their token-based fundraising models in new directions.