Kim K and a $4.5 Billion Heist: 10 Great Crypto Legal Dramas
It’s hard to top the recent legal drama between the supposedly sympathetic founders of the Bored Ape Yacht Club and the concept artist selling copycat apes to undermine their NFT empire. But as I teased last week, there are a growing number of notable crypto cases worth watching for anyone interested in the industry, from Wall Street to Hollywood. Below are the ten that I find the most exciting and that I now follow closely.
Let me say up front that I have never owned any crypto assets or digital art on the blockchain, and I will readily admit that I have never participated in a DAO (unlike my partner Baratunde Thurston, who tried to buy a piece of the US Constitution). I’m also not entirely convinced of the value of decentralized finance, or DeFi, at least from an investment perspective. What appears to some crypto fans as a long-overdue effort to reclaim power from Wall Street banks and the Federal Reserve strikes me as a business shifting power to the tech elite. And I’m not sure I trust Tyler and Cameron Winklevoss more … than Jamie Dimon.
But from a non-investment perspective, I can also identify innovation when I see it, from DeFi to “Web 3.0”, and particularly in the legal realm where so many questions relating to this digital frontier – Who owns the rights to an NFT character? East Kim Kardashian responsible for pumping the value of a digital token? – are actively prosecuted. Usually I have a pretty decent intuition for legal outcomes. But not with these ten cases. well do this new where anything can happen. I wouldn’t bet a single bitcoin against Kim K.
The 10 most interesting cases in crypto
George Kattula vs. Coinbase: I will start with a case which is also the most recent on this list. Filed on August 15, this putative class action lawsuit targets a widespread problem that haunts the crypto world: assets keep slipping out of the “wallets” of Coinbase account holders. The plaintiffs seek to assign legal liability to Coinbase for “rampant hacking and theft” and also argue that the $16 billion public company should register the tokens listed on its platform with the Securities and Exchange Commission. Like other ongoing lawsuits (Armijo vs. Ozone Networksfor example, regarding stolen Bored Apes), plaintiffs will first have to circumvent the arbitration provisions in the User Agreement, not to mention a class action waiver.
Securities and Exchange Commission v Ripple Labs Inc: Talking about crypto assets as so-called unregistered securities is the test case – one that could determine whether the federal agency that oversees public markets plays a significant regulatory role in crypto in the future. The second accused Ripple and two executives of conducting an illegal $1.3 billion bid, and the proceedings have gotten so hot that the judge recently allowed the government to keep the identities of its experts secret for now. Summary judgment motions are due next month. Meanwhile, the SEC is suing other companies and individuals for failing to register securities, such as those behind the Dragon token in a complaint filed last week.
Dan Carman vs. Janet Yellen: When Congress passed a big infrastructure bill last year, lawmakers included a provision that requires crypto exchanges like Coinbase to notify the IRS of high-value transactions. The plaintiffs in this Kentucky case claim that this reporting provision amounts to an unreasonable search under the Fourth Amendment and, ultimately, an unconstitutional invasion of privacy. The dispute could eventually become catnip for the Supreme Court, which may also be intrigued by a First Circuit opinion last week in Harper v. Rettig regarding how the IRS obtained records of an attorney’s crypto holdings. In the meantime, the Biden administration must respond by Nov. 7.
Free Holdings vs. Kevin McCoy: The history and terminology surrounding non-fungible tokens will be explored in this complex title slander lawsuit focused on how auction house Sotheby’s marketed the ‘first NFT’: Kevin McCoyit is Quantum, a 2014 blockchain-recorded artwork that sold for $1.472 million last year. The applicant (a Canadian holding company) alleged being the rightful owner of McCoy’s first NFT after the artist failed to renew his registration. The lawsuit focuses on whether Sotheby’s and McCoy offered a “false narrative” about how Quantum has been “burned” or “removed” from one blockchain and then re-minted on another.
Miramax vs Quentin Tarantino: How should Hollywood think about NFTs and integrate them into its mainstream entertainment framework? famous filmmaker Quentin Tarantino insists he held the rights to publish the pulp Fiction scenario and can sell NFTs derived from this scenario while Miramax argue that Tarantino’s reserved rights are quite limited and do not cover this. A judge is set to rule soon, and while there’s been some buzz around a potential settlement thanks to Miramax reporting “progress” in a recent case, an insider tells me a deal won’t happen. is not really imminent.
Nike vs. StockX: The defendant is an online sneaker marketplace selling NFTs of Nike shoes. The twist, according to StockX, is that the NFT matches a physical shoe in a warehouse and is “effectively a claim ticket” for the stored item. Nike sees infringement of intellectual property. StockX respond that what he does is protected as nominative fair use, which permits certain lawful references to trademarks, and the first-sale doctrine, which allows the owner of a particular copy of a work to sell that copy. The parties are in the middle of the discovery phase of this case.
Celsius Network bankruptcy: If crypto is ever to achieve trust and long-term stability, a successful restructuring where creditors feel supported is likely needed. This is where Celsius, the vaunted and now bankrupt crypto bank, comes in. Celsius customers transferred their crypto assets, earned rewards, and took out loans using crypto as collateral. But in July the company filed for Chapter 11, leading customers to worry about what would happen to the bank’s $5 billion in lost assets. The debtor, however, continues to operate and has at least a few months before the cash runs out. Meanwhile, a US administrator recently cited the “relatively new, deliberately opaque and, at best, loosely regulated” crypto market while call for the appointment of an independent reviewer to investigate Celsius and report what went wrong.
In Re Ethereummax Investor Litigation: When crypto assets implode, should the celebrities who publicized them suffer the consequences? This particular case aims to bring Kim Kardashian to justice, Floyd Mayweather, Jr.., and Paul Pierce to artificially inflate the price of EMAX tokens. Kardashian recently moved to lay off this investor class action on the grounds, among other things, that plaintiffs failed to adequately show that EMAX buyers were inspired by his Instagram posts to purchase the tokens.
Christian Sarcuni, et al., c. bZx DAO, et. Al: There is remarkably little case law regarding Decentralized Autonomous Organizations, or DAOs, in which a digital token offers certain voting rights taken by the collective. The bZx DAO, for example, governed a protocol that allowed users to trade crypto assets on margin, but became the target of angry users who lost their funds to hackers. Now a big question is whether bZx DAO token holders are “partners” jointly and severally liable for alleged negligence or if these strangers are nothing of the sort and armored of legal responsibility. A California judge is currently hearing arguments about whether the plaintiffs properly made a claim.
United States vs. Lichtenstein: Finally, there is this criminal recordwhich seems destined to be adapted into a future movie or TV show. Heather Morgan and Ilya Lichtenstein were a New York couple who dabbled in tech entrepreneurship, writing, rapping — yes, really — and being social influencers. In other words, they were pretty typical millennials. But according to the government, they were also quietly trying to launder more than 120,000 bitcoins stolen in a hack in 2016. The value of this bitcoin had gone from hundreds of thousands of dollars to around $4. billion at the time they were arrested, technically making their heist the largest in the country’s history. FBI agents found tens of thousands of dollars in foreign currency, empty books, dozens of tablets and a cellphone during a raid on their apartment. Their attorneys say the money laundering charges are “based on a series of circumstantial inferences and assumptions drawn from a complex web of convoluted blockchain and cryptocurrency tracing claims.” The trial, if there is no plea agreement, should be fascinating.
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