According to a recent study, ICOs are going to encounter a rise in the legal proceedings against the fraudulent ICO projects. With the increasing ICO scam examples, SEC USA has already asked for the registration of platforms that only fires the possibility of these lawsuits coming sooner than later.
ICO issuers to face class action lawsuit
Given the rising amount of ICO projects entering the fundraising market, it is sort of expected that the regulators around the world are taking a keen interest in this method. To be exact, about $3.8 billion amount has been raised by 210 ICO projects in last year in comparison to $95 million by 43 projects in 2016. It’s been only three months since this year has started and already $2.8 billion has been raised by 71 ICO projects.
However, the rise in the popularity of ICO projects has also increased the number of scams and money lost in them. According to the statistics, about $850 million has been lost to the cryptocurrency scams not to include the bigger ones of 2018.
According to a research paper published by a law firm Polsinelli LLP, the lawsuits against ICO projects will grow tremendously in the coming future. It has been explained that bitcoin and Ethereum are the mostly used cryptocurrencies to raise funds for ICO projects.
Over the past year, ICOs have come under the scrutiny of financial regulators for their fraudulent behavior. These projects have often failed to produce anything valuable that means “these ICOs, however, have spurred recent class action lawsuits” as put by the paper.
The research emphasizes on the obviousness of these ICOs as they don’t go through the formalities like IPOs leading to potential lawsuits, further explaining:
“We believe it is highly likely other issuers of tokens will face class action lawsuits. Any company planning to conduct a token offering using an ICO should proceed with caution. Similarly, anyone looking to invest in a token offering should make sure the offering is conducted in compliance with applicable state and federal laws.”
SEC ICO announcement…
Since the end of last year, there have been several class action lawsuits filed against the fraudulent ICO projects. The paper further explains that :
“The thread running through many ICO models is that they are often sold in a manner that may be contrary to state and federal securities laws.”
With SEC announcement yesterday, this looks like a clear possibility that can happen sooner rather than later. It has only become clear that ICOs now can’t operate in the United States without being registered. No shockers that Circle acquired the cryptocurrency exchange Poloniex.
Now, the issuers of ICOs have a responsibility and legality that they have to abide by and in case an ICO project scams people out of their money, there is a high probability of it facing a lawsuit and serious government intervention.
What do you think of ICO issuer’s propensity to face lawsuits? Let us know your thoughts below!