For example, Tesla recently reported that it updated its investment policy to allow the company to invest in certain alternative reserve assets including digital assets.1 As a result, Tesla amassed $1.5 billion in Bitcoin while simultaneously announcing that it will soon begin accepting the cryptocurrency as payment for its products. As consumers, investors, and businesses continue to adopt to these assets, extra caution and diligence must be exercised, not just because nascent markets are often volatile, but also for the reality that such assets still remain largely unregulated in the United States.
Perhaps unsurprisingly and in step with the increased adoption and popularity of cryptocurrency assets, we’re seeing the plaintiffs’ bar step in, as investors seek to recover losses from sponsors, issuers, and exchanges, for alleged violations of federal law, including the Commodity Exchange Act of 1936, Securities Act of 1933, and the Securities Exchange Act of 1934. Indeed, last year, securities class actions involving cryptocurrencies were second only to COVID-19 related filings in federal court – and since 2016, investors have filed over 35 cryptocurrency-related securities class actions. Generally, these cases include allegations that cryptocurrency token issuers and/or cryptocurrency asset exchanges are offering and selling unregistered securities in violation of applicable federal securities laws.
Although the SEC doesn’t directly regulate cryptocurrencies, it still has jurisdiction over initial coin offerings and securities linked to cryptocurrencies. The increase in investment activity in cryptocurrency has given rise to a trend of increased scrutiny and regulation, including comments by SEC Commissioner Hester Peirce, calling for an urgent need for clear cryptocurrency regulations in 2021.
Why this Matters
As these digital assets make their way into the economy, with companies like Tesla, PayPal and Square, or global financial institutions such as JP Morgan, Mastercard, and most recently, Goldman Sachs, backing cryptocurrency, the SEC might soon find itself in exigent circumstances. SEC Commissioner Peirce has noted the importance of providing transparency for market participants so that crypto assets can prosper without concerns about violating the law.
Investors should expect to see a continued uptick in cryptocurrency-related securities litigation along with increased SEC involvement and regulation of cryptocurrency transactions. Additionally, Treasury Secretary Janet Yellen recently met with the SEC, and emphasized the need to make sure trading practices promote investor protection and fair and efficient markets and to prevent the use of cryptocurrencies as vehicles for illegal transactions. According to Yellen, the SEC will prepare a report on trading practices in the increasingly volatile market, and she will work closely with regulators to determine how to implement an effective regulatory framework.
As institutional investors explore digital assets and begin adding it to their portfolios, cryptocurrencies should be addressed as part of their Investment Recovery Policy, and any robust global class action monitoring should include coverage of related litigation worldwide.
Broadridge will continue to monitor all developments in securities litigation in the U.S. and abroad, as well as relevant regulations as the world continues to incorporate digital assets into their economies.
We provide complete portfolio monitoring and asset recovery services in all class and collective actions, in all jurisdictions to support maximum opportunities and recoveries.
Connect with a Broadridge Class Action expert today.