Courts Target Crypto With Expanded Legal Action

Courts Target Crypto With Expanded Legal Action

Crypto news Lifestyle Technology
March 21, 2020 by Super System
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California Court Steps In

New Cryptocurrency Provisions

As part of a consolidated class-action lawsuit against Ripple Labs Inc, a California court argued that those cryptocurrencies which are not securities are subject to federal laws that target deceptive, unfair, or abusive acts and practices (UDAAP). This means that crypto entities or projects who claim exemption from federal securities laws, especially in California, could have further punitive action taken against them. The definition of “unfair practices” is fluid of course, as the nature of “fairness” has to be viewed from a legal prism. 

The Ripple Legal Situation

The case was based on whether or not Ripple violated California’s Unfair Competition Law (UCL). UCL is the blanket prohibition for unfair, fraudulent or unlawful business practices. 

The complication encountered by the legal approach is a case in 2004 (Bowen v. Ziasun Technologies Inc.) which deemed that the UCL does not apply to securities transactions on the basis of the Federal Trade Commission Act. This caused the discussion of UDAAP law as applied to securities to experience a setback for over a decade.

The plaintiff in the Ripple case claimed that Ripple Labs acted as a seller who issued the XRP tokens he purchased “as part of an initiation distribution”. The judge did rule in favor of the plaintiff in this regard but stopped short of supporting the allegations of Ripple Labs misrepresenting themselves as a “seller” under the California Corporations Code. Ripple’s argument was that under these laws the plaintiff could not point to the legal standing of their transaction as being “unfair” from a legal perspective.

The judge granted the plaintiff a 28 day period to file an amended complaint and address the allegations in a better defined legal manner. 

Ramifications

If the lawsuit puts crypto companies in strict observation of the UDAAP laws, the result could be that those entities who do not adhere strictly to all customer agreements presented to users would be under fire. This would mean that failing to accurately detail and represent the business practices of a project, promotional materials, and fees, would open up litigation against them under current UDAAP laws.

Companies looking to protect themselves from such litigation may need to more finely define their terms of service, and introduce class action waivers, along with arbitration agreements into their current terms.

 


 

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