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Legal experts claim that regulatory ambiguity has led to a wave of “novel” litigation

According to attorneys at Choate Hall & Stewart LLP, “litigation and enforcement activity is likely to accelerate in the current regulatory climate, possibly in unpredictable ways.”

Lawyers from Choate Hall & Stewart LLP, including Mike Gass, Diana Lloyd, and Alex Bevans, noted growing evidence that “novel applications of existing laws” are being used to litigate against cryptocurrency users and investors in a piece of analysis published on Law360 on June 28. They predicted this trend to only intensify over time:

High market capitalization combined with frequently mentioned regulatory ambiguity has paved the way for the expansion of enforcement and litigation.

The attorneys mentioned a number of instances as examples, such as the prosecution of an American citizen for utilising cryptocurrency to violate sanctions, multiple lawsuits filed by the SEC in recent years, as well as an increase in class action lawsuits and private litigation.

The authors stated that bitcoin trading platforms and those who use and trade cryptocurrencies “must know that litigation and enforcement activity is likely to accelerate in the current regulatory atmosphere, maybe in unanticipated ways.”

Through the U.S. District Court for the District of Columbia, the United States Department of Justice (DOJ) filed its first criminal lawsuit against an anonymous American citizen in May for using cryptocurrency to circumvent sanctions under the International Emergency Economic Powers Act (IEEPA).

This demonstrates a “increasing readiness of government authorities to seek criminal charges against persons breaching old laws with new forms of currency,” according to attorneys at the company, including Mike Gass, co-chair of the complex trial and appellate practice at the firm.

This trend is probably going to get worse, if this example provides any indicator.

The attorneys also mentioned the Securities and Exchange Commission (SEC) lawsuits against Ripple Labs Inc, the company that created XRP, and the decentralised content-sharing platform LBRY, both of which were accused of offering unregistered securities in the form of digital tokens. These lawsuits were filed in 2020 and 2021, respectively.

They also mentioned that BlockFi, a platform for retail crypto financing, was recently fined $100 million for failing to register the product.

In particular, the lawyers claimed that the LBRY case “demonstrates the SEC’s readiness to attack minor ventures like LBRY as much as huge projects like Ripple.”

The attorneys also cited research that showed there were more crypto enforcement actions between 2019 and 2021 than there had been in all prior years put together.

The attorneys predict that the SEC and DOJ would step up their enforcement efforts in the coming years and “likely be willing to explore innovative theories.”

“Private litigation involving cryptocurrencies also doesn’t seem to be slowing down. It is uncertain whether this will occur anytime soon, but greater regulatory certainty may help stop the litigation tide.

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