Category: Cryptocurrency Law

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Crypto News Cryptocurrency Law Dogecoin

Elon Musk Faces $258 Billion Lawsuit for Alleged ‘Dogecoin Pyramid Scheme’

Elon Musk, along with his companies Tesla and SpaceX, is facing a US$258 billion class-action lawsuit that claims they “are engaged in a crypto pyramid scheme (aka Ponzi scheme) by way of Dogecoin cryptocurrency”.

The lawsuit alleges that Musk “falsely and deceptively claims that Dogecoin (DOGE) is a legitimate investment when it has no value at all”, although crypto Twitter is already talking down the suit’s chances of success:

Order Sought to Classify DOGE Trading as ‘Gambling’

Plaintiff Keith Johnson, a Dogecoin investor, has filed a complaint in federal court accusing the world’s richest man of racketeering for touting DOGE and driving up its price, only to later allow it to tumble. According to the complaint, “[the] Defendants were aware since 2019 that Dogecoin had no value yet promoted Dogecoin to profit from its trading”, adding that “Musk used his pedestal as World’s Richest Man to operate and manipulate the Dogecoin Pyramid Scheme for profit, exposure, and amusement”.

Johnson argues that DOGE is “simply fraud whereby ‘greater fools’ are deceived into buying the coin at a higher price”. The plaintiff is seeking to represent a class of fellow investors who have lost money by trading DOGE since April 2019 and claims US$86 billion in damages and treble compensatory damages of US$172 billion.

Additionally, Johnson is seeking an order to block Musk and his companies from promoting DOGE, and declaring that DOGE trading constitutes gambling under US and New York law.

Musk Tweets Ongoing Support for Dogecoin

Musk has famously joked that Dogecoin could become the world’s currency. In May, he announced that SpaceX would soon accept DOGE for merchandise and also discussed allowing payment in DOGE for some Twitter services, should he become the owner of the social media platform – which he has since acquired for a cool US$44 billion.

Musk, for his part, remains unrepentant:

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Crypto News Crypto Wallets Cryptocurrency Law Hackers NFTs

Anon Hacker Gets Served with Restraining Order Via an NFT, a World First

In a world first for both the crypto space and the legal profession, a defendant in a hacking case has been served with a temporary restraining order by means of a non-fungible token (NFT).

International law firm Holland & Knight served the defendant on-chain using a “service NFT“. The hacker, who cannot be named, stole US$7.94 million in digital assets from a hot wallet belonging to LCX, a Liechtenstein-based fintech company.

Method Approved by NY Supreme Court

The service method was approved by the New York Supreme Court and “is an example of how innovation can provide legitimacy and transparency to a market that some believe is ungovernable”, according to LCX.

The hack, which took place in January this year, saw assets including Ether, USDC, Sandbox and more stolen from LCX, whose blockchain tracing specialists were subsequently able to identify the addresses of the hacker’s wallets.

LCX has been working with law enforcement authorities in Liechtenstein, Ireland, Spain and the US to trace the funds, which were initially appropriated via Tornado Cash, a crypto mixer protocol for concealing the digital trail of blockchain transactions. LCX traced the funds and wallets through what it describes as “algorithmic forensic analysis”.

Could Legal Precedent Save NFTs?

Perhaps this legal first could be the saviour of NFTs. Earlier this month, crypto analytics firm IntoTheBlock reported that Ethereum transaction volume was down 80 percent on the same period last year due in large part to plummeting interest in NFTs. Google search data showed a concurrent 75 percent reduction in searches for the term NFT, contributing significantly to the drop in transaction volume.

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Binance BNB Crypto News Cryptocurrency Law Regulation

US Regulator Investigates Whether BNB Token is an ‘Unregistered Security’

US market regulator the Securities and Exchange Commission (SEC) has launched an investigation into whether global crypto exchange Binance violated securities law by selling its BNB in an initial coin offering (ICO) some five years ago.

String of Regulatory Challenges

The SEC’s investigation into BNB, now the fifth-largest cryptocurrency by market capitalisation, relates to its ICO in 2017 where it is alleged it was sold without being registered.

In response to the allegations, a spokesperson from Binance commented:

As the industry has grown at a rapid pace, we have been working very diligently to educate and assist law enforcement and regulators in the US and internationally, while also adhering to new guidelines. We will continue to meet all requirements set by regulators.

Binance statement

At this early stage, information remains somewhat limited with Binance adding that it “would not be appropriate for us to comment on our ongoing conversations with regulators, which include education, assistance, and voluntary responses to information requests”.

Binance’s CEO, Changpeng ‘CZ’ Zhao, was less diplomatic in his assessment:

Aside from the SEC investigating several other high-profile ICOs, Binance is also under the microscope after it was hit with a US$5 million class-action lawsuit in which users claimed the exchange sold them 79 different crypto assets (including Dogecoin, Solana, and Cardano) that should have been properly registered as securities.

Vocal Responses from the Bitcoin Community

Max Keiser, Bitcoin maximalist and co-host of the Orange Pill podcast, did not mince his words in response to the news:

Cory Klippsten, founder of Swan Bitcoin exchange, was somewhat more charitable, while sharing the sentiment held by the majority of Bitcoiners:

Michael Saylor, the inimitable founder and CEO of MicroStrategy, has previously said he is of the view that everything outside of Bitcoin is a security. Given that Saylor has spent the better part of three decades operating in US capital markets, you’d imagine he and his legal team have their finger on the regulatory pulse.

Saylor certainly made the point crystal clear in a recent interview with former hedge fund manager Raoul Pal, in which the two clashed over what Pal considered to be “outdated securities laws”:

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Australia Cryptocurrency Law Scams

Australian Labor Government Urged to Protect Aussies from Crypto Scams

Consumer advocates have begun urging the new Australian Labor government to protect citizens from crypto scams. This accompanies the release of a national survey conducted by CHOICE on Australians’ attitude towards crypto:

CHOICE vs Crypto Scams

Consumer advocates are calling for industry reform in the crypto and blockchain sector as the Labor Party embarks on its first term of government. Despite only one in 10 Aussies having reportedly purchased crypto in the past 12 months, a concerning cohort of those were caught up in investment scams. On top of this, the recent flattening of the market has seen billions of consumer dollars lost.

The combination of crime and market volatility has prompted CHOICE, Australia’s leading consumer advocacy group, to petition the incoming government for change:

https://www.linkedin.com/in/patrickveyret/overlay/photo/

CHOICE is hearing from many Australians about financial loss and other harm caused by purchasing crypto assets that were not what they appeared to be.

Patrick Veyret, spokesman for CHOICE

CHOICE is calling for more stringent regulation and is composing a submission to the federal treasury. The submission will request several changes, including a “single definition for crypto assets” for regulatory purposes, as well as the requirement for crypto exchanges to install appropriate measures to “prevent fraudulent payments and to reimburse consumers” should fraudulent payments occur.

Consumer Watchdog Nips Crypto

The Australian Competition and Consumer Commission (ACCC) has been cracking down on crypto scammers over the past year. In March 2022, the ACCC sued Meta, Facebook’s parent company, over its failure to prevent the circulation of scam crypto ads. The misleading ads took the form of several local Aussie celebrities appearing to endorse crypto investments and were in adjudged to be in breach of Australian consumer law.

An uptick in the number of crypto investment scams was reported by the consumer watchdog in April this year as crypto superseded bank transfers in terms of investment scams. As a result, losses to crypto scams had increased by 90 percent in the space of three months.

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Crypto News Cryptocurrency Law TerraUSD

Terraform Labs Update: South Korean Police Move to Freeze Foundation’s Assets

The Terraform Labs debacle has taken on a new twist as South Korean law enforcement authorities are reportedly moving to seize the remaining assets of the Luna Foundation Guard (LFG).

Since depegging from the US dollar, both UST and LUNA have collapsed in spectacular fashion, despite injections of capital and failed revival plans that were dead on arrival. With a class action lawsuit looming, things appear to be going from bad to worse for Terraform Labs and its formerly outspoken founder, Do Kwon.

The Saga Continues

According to a local report, law enforcement officials in South Korea are taking action to freeze assets tied to the non-profit group LFG (Luna Foundation Guard). The report suggests that the Seoul Metropolitan Police Agency has asked multiple exchanges to block LFG from withdrawing any corporate funds.

Police indicated that their interest was piqued upon hearing that LFG may have embezzled funds, however it is interesting to note that per the report, the exchanges have no obligation to comply with law enforcement officials’ request.

Simultaneously, it was also reported that following the Terra ecosystem collapse, Korean legislators had been meeting with the five biggest crypto exchanges to establish the extent of loss and who should be held accountable.

We will request a quality investor protection policy to be implemented amongst exchanges.

Yoon Chang-hyeon, chairman, People Power Party’s Virtual Assets Special Committee, Facebook post

Worst Yet to Come for Terraform

A few exchanges have elected to delist LUNA, while others have placed an “investment warning” on the now virtually worthless token. From its high of close to US$120 it is now trading at US$0.0001626.

Although it’s still early days, current indications suggest that the worst is yet to come for Terraform Labs and its founders. After mocking detractors for being “poor”, it may ironically be Do Kwon who suffers that fate, or even worse.

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Crypto News Cryptocurrency Law Terra

Luna Investors Apply for Seizure of Do Kwon’s Property in Class Action Lawsuit

A South Korean law firm is suing Terraform Labs founder and CEO Do Kwon over last week’s Terra collapse. The firm will also be filing warrants to seize Kwon’s property:

Investors Stand Against Do Kwon

Kwon and Terraform co-founder Daniel Shin are the subject of a class-action lawsuit from Seoul-based law firm LKB & Partners, filed in the wake of the Terra downfall, with possible criminal charges to follow:

There are related investors inside the law firm, and we will file a complaint against Kwon at the Financial Investigation Unit of the Seoul Metropolitan Police Agency.

Kim Hyeon-Kwon, partner, LKB & Partners

LKB & Partners will sue on behalf of the investors who have lost money because of the UST crash, with some of the impacted Terra employees set to join the suit. LKB & Partners will also file a police complaint and a bid to seize Do Kwon’s property as compensation.

Unfortunately for the Terraform Labs founders, multiple members of the company’s in-house law firm have resigned. While it remains unknown why these employees resigned at the beginning of the crash, it has left Do Kwon in a tough position.

What’s Happening with LUNA?

The news of the collapse of Terra has been hard to miss lately; however, this controversy is the outcome of the depegging of Terra USD (UST). Previously one of the largest stablecoins on the market, the resulting knock-on effects have been immense, including the sinking of LUNA and a negative impact on the DeFi industry.

Kwon has, however, proposed a revival plan for Terra. It constitutes a restart of the entire Terra blockchain and the distribution of one billion new tokens – a plan ex LUNAtics are highly opposed to.

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Bitcoin Crypto News Cryptocurrency Law Regulation Terra TerraUSD

UST Meltdown Spurs Global Warnings of Crypto Regulation

Unsurprisingly, the UST depegging fiasco has triggered regulators around the world to accelerate their efforts. While some persist in being hostile towards any regulation, others have expected it from the outset:


Regulators Seize the Opportunity Amid LUNA Debacle

When history is written, this past week may well be regarded as a watershed moment for the crypto sector as LUNA plunged 97 percent overnight.

To illustrate the extent of the carnage, consider that LUNA plummeted from an all-time high of US$119 in April to US$0.000143 at the time of writing. In addition, its sister not-so-stablecoin UST has completely depegged from the US dollar since May 9, currently trading at US$0.0901.

The LUNA collapse alone saw US$50 billion in market capitalisation erased in a week, leading crypto-sceptic regulators around the world to seize the opportunity to capture the narrative.

Regulations Incoming

With the market down US$500 billion in the past two weeks and with UST completely depegging from the US dollar, regulators’ initial focus has been on stablecoins.

In addition, crypto regulation has been placed on the agenda for the upcoming G7 summit in Germany, with French central banker Francois Villeroy de Galhau commenting:

What happened in the recent past [UST meltdown] is a wake-up call for the urgent need for global regulation.

Francois Villeroy de Galhau, governor, Bank of France

In the US, Securities and Exchange Commission chair Gary Gensler said on May 16 that “a lot [needs] to be done here, and in the meantime, the investing public is not that well-protected”, adding: “We’re going to continue to be a cop on the beat.”

Treasury secretary Janet Yellen also told told lawmakers last week that UST’s fate underscored the need for bank-like regulations to be imposed on stablecoin issuers. An anonymous official familiar with the matter added: “In the absence of congressional action, last week’s volatility will put regulators and stakeholders on a stronger footing if they feel the need to act alone to mitigate the risks.”

Shortly after, a non-partisan report by the Congressional Research Service echoed Washington’s sentiments, arguing that the stablecoin industry lacks the regulations found in traditional finance systems to safeguard investors. The overarching theme of the policy recommendations relates to transparency and disclosure.

Separating the Wheat from the Chaff

While regulation is not welcome by many, it appears all but inevitable that it will play an increased role going forward. It’s difficult to envision how a parallel system (ie, crypto) with little to no disclosure obligations can persist for long.

As exchanges like Coinbase face class action lawsuits for selling “unregistered securities”, it’s likely that most cryptocurrencies will find themselves falling within the parameters of increased regulation.

Not everyone is concerned, however, as Bitcoiners like Michael Saylor believe that everything outside of Bitcoin is an unregistered security.

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Australia Crypto News Cryptocurrency Law Investing Regulation

Portugal’s Crypto Tax Haven Status Set to End, 28% Capital Gains Impost Coming Soon

Portugal’s Finance Minister Fernando Medina has confirmed that the southern European nation will begin taxing cryptocurrencies, reversing a six-year-old tax law that excluded crypto gains on the grounds that they are not legal tender.

The current capital gains tax rate for financial investment in Portugal is 28 percent. However, legislation relating to the introduction of such an impost on crypto could take two or more years to implement, given Portugal’s notoriously slow-moving bureaucracy:

Portugal’s altered tax stance will bring the country into line with many other nations around the globe. Among them are Australia – whose Tax Office earlier this week warned investors of the need to report annual crypto capital gains and losses – the UK and US.

Goodbye ‘Golden Visa’

Until now, Portugal has been seen as a crypto tax haven that offers permanent residency via what is known as the ‘Golden Visa’, because it grants holders special tax exemptions and a path to citizenship. The program was instituted as a means of attracting foreign investors, and in response to the country’s new tax plan, industry observer and cyber security professional Anthony Sassano saw the funny side:

Portugal may wish to take note of the fact that late last month, Panama passed a bill exempting crypto from capital gains tax, making the Central/South American republic a more attractive destination for digital asset investors.

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Australia Cryptocurrency Law Cryptocurrency Tax

ATO Plans to Focus on Crypto Capital Gains for 2022 Tax Season

The Australian Taxation Office (ATO) has announced its priorities for the upcoming tax 2022 year and included is a warning for crypto investors to ensure they don’t disregard their tax obligations when it comes to the disposal of digital assets:

Crypto Capital Gains Tax The Target

Crypto capital gains are one of the four priorities for tax time listed in the May 16 media release, with the ATO flagging legal action against anyone guilty of falsifying records or who fails to substantiate their claims:

Tim Loh, the ATO’s assistant commissioner, has stated that while the ATO has a reasonable idea of investor activity, diligence on the part of taxpayers is recommended when it comes to recording transactions:

https://www.linkedin.com/in/tim-loh-632a7919/overlay/photo/

Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year. Remember, you can’t offset your crypto losses against your salary and wages.

Tim Loh, ATO assistant commissioner

NFTs are also within the scope of the assets that must be accounted for, as they will be subject to tax if sold for a profit.

Crypto Taxes in Other Forms

With the 2022 federal election only days away, the policy is being prepared for the regulation of digital assets and artists. NFTs reportedly needed quick policy implementation to prevent a drain on the economy. However, pro-crypto NSW Senator Andrew Bragg has said that such taxing is “inadvertent” and offers no real transfer of value.

June 2021 saw the assembly of a cooperative task force consisting of the ATO, the Australian Securities and Investments Commission (ASIC), the Federal Police, and the Australian Criminal Intelligence Commission (ACIC). Labelled the Serious Financial Crime Taskforce (SFCT), its role is to investigate the circumstances surrounding crypto money laundering, fraud, and tax avoidance.

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Crypto News Cryptocurrency Law NFTs OpenSea

UK Court Rules NFTs as ‘Private Property’ Favouring NFT Holders

The High Court of Justice in the UK has ruled to recognise NFTs as private property. The ruling has been hailed as a “landmark” but in reality will not actually change much, apart from helping to combat fraud. NFTs are already treated as private property in the US:

The catch in the ruling is that this conferred private property status does not extend to the underlying content an NFT represents.

OpenSea Caught Up in Case

The court case came about when Lavinia Osbourne, founder of Women in Blockchain Talks, claimed that two Boss Beauties NFTs had been stolen from her MetaMask wallet earlier this year. The NFTs ended up in two anonymous accounts on OpenSea and in an effort to reclaim the stolen property, Osbourne filed an injunction against the NFT marketplace.

A judge overseeing the case ruled that the NFTs were technically property and thereby enabled the court to issue an order requiring OpenSea to freeze the accounts so the NFTs could not be traded or sold.

Since no one knew the identities of the wallet holders, the injunction was granted against “persons unknown”. In a comment regarding the decision, Stevenson Law firm described the ruling as “a draconian remedy”.

Osbourne commented following the ruling:  

Women in Blockchain Talks was founded to open up the opportunities blockchain offers to anyone, regardless of age, gender, nationality or background. This case will hopefully be instrumental in making the blockchain space a safer one, encouraging more people to interact with exciting and meaningful assets like NFTs.

Lavinia Osbourne, founder, Women in Blockchain Talks

UK authorities have been cracking down on the fraudulent use of NFTs, with the country’s first NFT seizure worth US$1.9 million earlier this year having been part of an investigation into an elaborate tax evasion scheme.