Tag: Class-Action Lawsuit

US District Judge Rules in Favor of Custodial Arrangement for bZx DAO Members

by Blockchain News

In a recent update to the ongoing class-action lawsuit against bZx DAO members, a United States district judge ruled that the ability for developers to upgrade a smart contract where the key is in the hands of a single developer makes the arrangement custodial. The ruling, passed by United States District Judge Larry Alan Burns on March 27, marks a significant development for decentralized autonomous organizations (DAOs).

While the ruling may seem unremarkable on the surface, Web3 lawyers have noted its potential impact on the DeFi space. The defendants in the case claimed that transactions in the bZx protocol are noncustodial because users can maintain custody of their assets. However, a successful phishing attack on a bZx developer compromised the funds supposedly under users’ custody, rendering the distinction between custodial and non-custodial meaningless.

Gabriel Shapiro, the general counsel for crypto firm Delphi Labs, tweeted that the court’s ruling implies that a single developer holding the upgrade key makes the arrangement custodial. This could also apply to developers with multisigs, potentially leading to DeFi platforms that employ multisigs being seen as custodial platforms. As a result, these projects may need to obtain the necessary licenses for custody to comply with the law.

Gregory Schneider, the deputy general counsel for Hedera, commented on the lawsuit, highlighting that the ruling is significant for the DAO space. According to Schneider, the case must be “closely examined by anyone thinking about legal liability in the DAO space.”

DAOs are autonomous organizations that operate using smart contracts on a blockchain. They are designed to be decentralized and operate without intermediaries, such as banks or other financial institutions. However, the bZx case highlights the potential legal implications for DAOs, particularly those that employ multisigs.

Multisigs are a type of digital signature that requires multiple parties to sign off on a transaction. They are often used in the DeFi space to secure smart contracts and provide an additional layer of protection against hacks and other security breaches. However, the bZx case raises questions about the legal status of multisigs and their impact on the custodial vs. non-custodial debate.

The ruling in the bZx case may lead to further regulatory scrutiny of DAOs and DeFi platforms. It underscores the need for the DeFi industry to develop robust security measures and to comply with applicable laws and regulations. As the DeFi space continues to grow and evolve, it is likely that we will see more legal challenges and regulatory developments in the months and years ahead.

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BitBoy Crypto accused of threatening class-action lawsuit lawyers

by Blockchain News

In a court filing on March 20, lawyers for the class-action lawsuit accused Ben Armstrong, also known as BitBoy Crypto, of making multiple threats against them after they filed a lawsuit against him and other FTX influencers for promoting FTX crypto fraud without disclosing compensation. The lawyers claimed that Armstrong harassed them with endless phone calls, tweets, and emails, as well as insulting and threatening posts on social media. The court filing alleged that Armstrong made up to 21 calls within a 45-minute period, leaving voicemails full of vulgarities that specifically targeted the lawyers. The voicemails also included warnings of First Amendment protesters around their houses 24/7 day and night and that the lawyers’ home addresses were being circulated on Reddit.

The court filing also alleged that Armstrong made threats to Adam Moskowitz, one of the lawyers in the class-action suit, including a message that prompted a report to authorities, warning the lawyer that “these people are dangerous” and can result in “you and your family shot.” Armstrong also allegedly called Moskowitz a “bitch” and an “unbelievably dumb mother fucker” in an email before stating that he “never even promoted FTX” and warning Moskowitz to expect a counter-suit.

The court filing claimed that Armstrong encouraged others to join the attacks and posted a YouTube video directed at the lawyers and those who bought the suit, allegedly warning them that he was “coming at them with full force.” The lawyers noted that this was not the first time Armstrong had caused threatening controversy, as he had filed and later dropped a defamation suit against fellow YouTube content creator Erling Mengshoel Jr, who goes by “Atozy.”

Armstrong filed the defamation suit against Mengshoel in response to a November 2021 video titled “This YouTuber scams his fans…Bitboy Crypto,” which alleged that Armstrong was dishonestly promoting assets to his audience for his own benefit. However, Armstrong dropped the lawsuit a few weeks later and claimed that Mengshoel had won after raising more than $200,000 for his defense in less than 24 hours.

BitBoy Crypto has not yet responded to the recent allegations made against Armstrong. The class-action lawsuit seeks $1 billion in damages from Armstrong and other FTX influencers.

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Binance.US Sued for Selling Unregistered LUNA Securities

by Blockchain News

Binance.US has been sued in a class-action lawsuit for selling unregistered security tokens from the Terra blockchain protocol.

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The class-action lawsuit was filed in the Northern District of California, dragging the exchange for misleading investors with the sale of LUNA and UST tokens, both of whose collapse led to the loss of over $40 billion of investor’s money globally.

The lawsuit, filed by the plaintiffs, represented by law firms Roche Freedman and Dontzin Nagy & Fleissig, blames Binance.US’s business model “premised on illegally enabling the sale of unregistered securities to as many US investors as possible, as often as possible.”

The Plaintiffs are asking for a Jury trial where it deems necessary as the exchange was also accused of promoting the airdrops of tokens in a bid to facilitate trading volume.

Since the collapse of UST and LUNA, several groups of investors, including those from South Korea, have been plotting lawsuits as they explore avenues to cut back on their losses, despite the emergence of Luna 2.0. 

In a bid to aid those seeking to explore legal options in pursuit of all parties they deemed guilty in the Terra mishap, Kyle Roche from Roche Freedman posted an update back in May, which seems to have materialized through the lawsuit.

“If you purchased $LUNA or $UST on either @coinbase @krakenfx @binance or @Gemini, please reach out to TerraRecovery@rochefreedman.com. My firm is coordinating an effort to help those who lost funds from the recent collapse of #terra and #luna,” he said in a tweet on May 13.

A Binance.US spokesperson has denied all forms of wrongdoing, noting that the exchange operates within the provisions of existing laws. 

“Binance.US is registered by FinCEN and adheres to all applicable regulations. The spokesperson said that these assertions are without merit, and we will defend ourselves vigorously,” the spokesperson said.

While other exchanges, particularly Coinbase, have also been embroiled in a class-action lawsuit, this filing will be one of the most publicized for Binance.US.

Image source: Shutterstock

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Rapper The Game facing $12M judgment along with execs in ICO case

by Cointelegraph

Los Angeles-based rapper The Game, also known as Jayceon Taylor, is facing a $12 million judgment for his role in Paragon Coin Inc — a crypto firm alleged to have engaged in an unregistered initial coin offering (ICO) four years ago.

Taylor publicly endorsed the Paragon Coin ICO on social media back in 2017. Paragon touted its PRG tokens as a currency for the cannabis industry and raised $70 million from the public between April 15, 2017, and Oct. 15, 2017.

Plaintiffs’ first filed a complaint against the offering in 2018, however, Tyler was initially let off the hook as the plaintiff’s initial complaint failed to clearly allege the firm had employed the rapper.

However, in issuing a verdict on the amended complaint, United States Federal District Judge Jeffrey S. White noted that plaintiffs have now provided sufficient evidence to show that “Taylor acted for his own gain or for Paragon’s gain,” and can now be considered a team member and “statutory seller.”

The plaintiffs cited Paragon’s white paper, which stated that “’founders and team members would be prohibited from ‘liquidating’ more than 20% of their PRG Tokens in the first calendar year” in order to “keep a stable token price.”

Judge White stated in a court order in California on June 23, that The Game is now severely liable for $12 million plus pre- and post-judgment interest.

The popular rapper is now liable among the other defendants, including Paragon, its founders Jessica VerSteeg and Egor Lavrov, along with executives Eugene Bogorad, Alex Emelichev and Gareth Rhodes.

Related: Judge blocks sale of Jay-Z’s first album and its copyright as an NFT

The class-action lawsuit was first introduced back in 2018, after the plaintiff and investor in the project, Astely Davy, filed the lawsuit and asserted that Paragon should be forced to disgorge its earnings for failing to register its token sale with the Securities and Exchange Commission (SEC).

In November of 2018, the SEC imposed $250,000 worth of civil penalties on Paragon for failing to register its token sale, which was a self-described first of its time by the SEC.

It is yet to be seen how Paragon itself would compensate the money owed to investors, as the founders have declared bankruptcy and reportedly fled the U.S.