According to a recent report released by Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research, federal lawsuits related to initial coin offerings is set to double. Coin offering is a new fundraising method in which entrepreneurs raise capital by selling blockchain tokens. In the previous year, five lawsuits were filed related to the technology and this year, in only 6 months, the number of filings has increased to seven.
ICOs have raised over $19 billion since 2014 and the highest amount was raised in 2018. One of the lawsuits was filed against San Francisco-based Ripple Labs. The defendant stated that he made “hundreds of millions of dollars” but the sale of XRP to retail investors was not registered. A lawsuit alleges that material facts were not disclosed by the company that caused its value to drop. Lawsuits against Paragon Coin, Latium Network, DRIP and Cloud With Me were also filed. One of the cases against Mining Max was dismissed in June.
The lawsuits might be a result of the distrust of people towards the whole crypto platform.
The
report also pointed out the problems that exist related to the traditional securities issuances. “
If the trends observed in the first half of the year continue to year-end, approximately 8.5 percent of all companies listed on the NYSE and NASDAQ markets will have been sued in these cases," said Joseph Grundfest of Stanford Law school implying that the filings were just a tiny fraction of the total class action lawsuits that were actually filed.