Crypto Securities Class Action Filings Will Follow Market Trends

The arc of crypto-related securities class actions in the coming months will likely reflect the health of the cryptocurrency and digital assets market. These class actions surged to record highs in 2022 after major disruptions in crypto, then quieted to pre-2022 levels in 2023 as the crypto market rebounded. As 2024 continues, the landscape of the cryptocurrency and digital assets market, and subsequent litigation, are poised to evolve further.

Although the number of crypto-related securities class action litigation actions dropped last year, the nature of plaintiffs’ allegations remained consistent with previous years. The ripple effects of the collapse of several major market players in late 2022 also continued to shape some cases.

Twenty-three class actions were filed amid the turbulence of the crypto market in 2022, ending with the collapse of FTX Trading Ltd., one of the world’s largest cryptocurrency exchanges. This was a substantial increase from the 13 and 12 cases filed in 2020 and 2021, respectively. However, with the recovery of the crypto market in 2023, class action filings fell to 14, aligning with the trends observed prior to the 2022 bear market.

The collapse of FTX in November 2022 sent shockwaves through the crypto market that affected the litigation landscape of 2023. The decrease in litigation that year likely corresponds to the recovery of the crypto market after months of uncertainty in 2022.

Of the 14 securities class action cases filed in 2023, most were filed in the first quarter of the year. Quarterly, the cases included: Q1 (8), Q2 (3), Q3 (1), Q4 (2). Four of the complaints from 2023 involved allegations concerning companies that either themselves collapsed in the aftermath of FTX’s failure or were alleged to have hastened FTX’s collapse.

The geographical distribution of crypto securities class actions suits saw a shift in 2023, with a notable decline in cases filed in the US District Court for the Southern District of New York. In previous years, such cases were predominantly filed in federal court in California and New York.

For instance, of the 23 total cases filed in 2022, almost two-thirds (15 total) were filed in either California or New York, and almost a quarter (five total) were filed in the Southern District of New York alone. However, of the 14 cases filed in 2023, only seven were filed in federal court in California or New York.

Specifically, California had three cases filed in the US District Court for the Northern District of California and one case filed in the US District Court for the Southern District of California. New York had two cases initially filed in the US District Court for the Eastern District of New York while only one was filed in the Southern District of New York—a marked decline for the Southern District of New York compared to years past.

Of the companies that are either defendants in or central to the allegations of these 14 cases, one is headquartered in the UK, one is headquartered in the Cayman Islands, one is headquartered in Switzerland, one was headquartered in Singapore prior to its bankruptcy, and one has an unknown location for its headquarters. The other nine companies are or were headquartered in the US.

The explosion of crypto litigation in 2022 largely involved US defendants (21 out of 23 cases), so the 2023 filings may represent a modest return to litigants outside of the US, particularly toward Asia. Crypto class action defendants in 2021 saw a similar breakdown as in 2023: In 2021, nine of 12 defendants were headquartered in North America and three of 12 defendants were headquartered in China.

Many of the crypto securities cases filed in 2023 are still in early stages of litigation. Only one case from 2023 has been resolved—the complaint against Pollen Mobile LLC, which was filed and subsequently voluntarily dismissed.

A range of defendants faced crypto securities class actions in 2023 from DraftKings Inc. and Lido Inc. to Argo Blockchain Plc and Marathon Digital Holdings Inc. Financial services companies, including Ryvyl Inc. and Signature Bank, were also targeted, as well as unique defendants such as Shaquille O’Neal.

The key legal question remains when a cryptocurrency or digital asset can be considered a security with implications for future litigation. A federal court in New York addressed this last year in SEC v. Ripple Labs, but other courts aren’t bound by the principle established.

Challenging issues remain that may also arise in securities litigation relating to valuation, tracing, and market manipulation. Looking ahead, the evolution for the crypto market will undoubtedly shape the landscape of crypto securities class action litigation.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Joni Jacobsen is the global co-chair of the securities and complex litigation practice group at Dechert.

Angela Liu is partner in the securities and complex litigation practice group at Dechert.

Timothy Spangler is partner in the financial services practice group at Dechert.

Vishan Patel and Jack Foley contributed to this article.

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