Research published by a leading law firm this week has indicated the potential for a large number of cryptocurrency class action lawsuits in future, with initial coin offerings (ICOs) at the forefront of their concerns.
Law firm Polsinelli LLP, which employs over 800 attorneys across 20 offices, published its internal findings in a report titled “Cryptocurrency Class Action Lawsuits: A New Frontier.” Prepared by three researchers at the firm, Michael Foster, Mark Olthoff and Richard Levin, the report raised concerns over the potential for growth in litigation from ICO investors.
While some early ICOs have already attracted class action litigation from disgruntled investors, the explosion in the funding model in recent months was identified as a key factor in driving future litigation.
“Because anyone with an idea for a project can gain financial backing without going through the formalities of an IPO, there are obvious chances for the public to be scammed, leading to potential lawsuits. We believe it is highly likely other issuers of tokens will face class action lawsuits,” according to the report.
The research also warned companies planning to conduct a token crowdsale to “proceed with caution,” while “anyone looking to invest in a token offering should make sure the offering is conducted in compliance with applicable state and federal laws.”
Since emerging as an alternative model for companies to raise capital, as opposed to the more regulated IPO process, ICOs have already raised billions of dollars against blockchain tokens—a form of pseudo-security, or in some cases, according to regulators, an outright security that should be regulated in the same way as any other share offering.
However, several ICOs have already given rise to class action suits, with suits against Monkey Capital, ATB Coin, and the Centra ICO flagged by the report as recent examples.
“The thread running through many ICO models is that they are often sold in a manner that may be contrary to state and federal securities laws,” according to the law firm. “ICOs, therefore, may be fodder for lawsuits by investors alleging harm by being taken advantage of by the founders and the lack of regulatory oversight.”