The future trends of crypto-related securities class actions are expected to closely mirror the health of the cryptocurrency and digital assets market. Despite an initial surge in filings during the tumultuous 2022 crypto market disruptions, these class actions have returned to pre-2022 levels as the cryptocurrency market recovered in 2023.
The nature of plaintiffs’ allegations remained unchanged in subsequent years, even if the number of filings dropped, notably shaped by the fallout of the collapse of several major market players in 2022. In that year, the collapse of the major cryptocurrency exchange FTX Trading Ltd., sparked a significant increase in class actions, with 23 cases filed, compared to 13 and 12 in 2020 and 2021, respectively. Following the recovery of the crypto market in 2023, litigation filings fell to 14, reflecting patterns seen before 2022.
The year 2023 witnessed a shift in the geographical distribution of crypto securities class actions, with a marked decline in cases filed in the US District Court for the Southern District of New York. In contrast, the majority of cases in previous years were predominantly filed in federal court in either California or New York. Of the 14 cases filed in 2023, only seven were filed in federal court in these two states, a change from the two-thirds of 23 cases filed in these states in 2022.
The defendants of the cases filed in 2023 were more global in nature compared to previous years. Out of the 14 cases, one each was headquartered in the UK, the Cayman Islands, Switzerland, and Singapore (prior to its bankruptcy). Half of the cases were still US-based, but compared to the predominantly US-centred defendants of the 23 cases in 2022, there appears to be a trend representing litigants outside of the US, particularly Asia.
Some of the defendants in crypto securities class actions in 2023 included household names such as DraftKings Inc. as well as individuals like Shaquille O’Neal. Most of these cases are still in the early stages of litigation, with only one filed against Pollen Mobile LLC voluntarily dismissed so far.
The definition of when a cryptocurrency or digital asset can be classified as a security remains the central legal question with significant implications for future litigation. Despite this being addressed in the judgment of SEC v. Ripple Labs by a New York federal court, the established principle isn’t binding on other courts. Future challenges in securities litigation – valuation, tracing, market manipulation – will arise as the crypto market evolves.
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