Elon Musk, Kim Kardashian and BitBoy Crypto are among several well-known battling billion-dollar lawsuits issued since 2022. In the most recent scandal, Binance, Bitboy Crypto and other top influencers were targeted for promoting unregistered securities.
Many of these lawsuits are an effort of regulators cracking down on the broader crypto industry, with both the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) recently attacking the space.
Ethereum Max
While the industry is no stranger to scandals, the recent crackdown started with Kim Kardashian and Floyd Mayweather, who were sued for promoting ‘Ethereum Max’. Investors argued it was a pump-and-dump in which they were misled into investing by the celebrities.
Concerning the action, Kim Kardashian agreed to pay the SEC $1.26 million for failing to disclose that she was paid to promote the EMAX tokens.
Despite Kardashian’s settlement, the lawsuit continued. Still, in recent developments, a Californian federal judge dismissed the case, stating that it was unclear whether the investors had seen the celebrities’ cryptocurrency promotion.
In response to the dismissal, an attorney representing claimants in the Ethereum Max case stated they would continue to pursue the case with “a host of additional facts demonstrating defendants’ wrongdoing and liability.”
Dogecoin
In June 2022, six months after the case against Kardashian and Mayweather began, a Dogecoin investor sued Elon Musk for $258 billion, accusing him of running a pyramid scheme.
The Tesla CEO has recently asked the court to dismiss the charges.
“The Complaint is a fanciful work of fiction that fails to state any actionable claim against Defendants Elon Musk and Tesla and must be dismissed in its entirety with prejudice,” Said Musk’s lawyer when discussing the motion to dismiss.
The claims are based on Musk’s strong backing of Dogecoin on social media, one of the main contributing factors to its once $75 billion valuation. The coin sits at a $13.5 billion market cap, recently pumping 30% after Musk set the new Twitter logo to the Dogecoin dog.
Dogecoin sits high on the ranked list of the best cryptocurrencies with the eighth-highest market cap. Nonetheless, many worry that the coin’s high valuation is due to its affiliation with Musk, who artificially pumps the price higher for his personal gain.
Binance
The most recent development has seen Binance, Ben Armstrong, known as BitBoy Crypto, and other crypto influencers hit with a $1 billion lawsuit for promoting unregistered securities.
On 31 March, the Moscowitz Law Firm and Boies Schiller Flexner filed a lawsuit against Binance for enabling the trading of unregistered securities and against several influencers, including Ben Armstrong, for promoting them.
The case comes at the same time as the SEC has issued statements attacking Proof-of-Stake (PoS) cryptocurrencies and labelling them as unregistered securities. This claim gives weight to the accusations against Binance and crypto influencers.
However, in another development, the Commodities Futures Trading Commission has sued Binance, claiming it routinely broke derivatives trading rules in America, as it grew to become the world’s most prominent cryptocurrency trading platform.
The issue that many in the industry crypto industry have highlighted is that these two lawsuits are conflicting. The SEC is claiming Binance is selling unregistered securities, while the CFTC is claiming Binance broke derivatives trading rules while selling commodities.
Ben Armstrong highlighted this issue in a recent Tweet that said he is being sued for “promoting unregistered securities through affiliate program at Binance.” However, he says the claimant “uses quotes from the CFTC action vs Binance. You know, the one where CFTC calls $BTC, $ETH, $LTC, & $BUSD commodities”.
Additional Developments
It is not the first time the SEC has claimed a cryptocurrency to be a security. The cornerstone case is the SEC vs Ripple, which has been ongoing since 2020. That said, the Ethereum merge event, which combined the Ethereum chain with the Beacon chain to transition Ethereum to PoS, led the SEC Chair Gary Gensler to state Ethereum and all other PoS blockchains should be regulated as securities.
Gensler believes PoS cryptocurrencies should be regulated as securities as they pass the Howey test. The test is used to determine whether a transaction qualifies as an investment contract, which would make it a security in the United States.
He believes that ‘staking’ crypto assets on a blockchain like Ethereum, in return for an expected annual yield (or profit), makes PoS cryptocurrencies securities.
The accusations against cryptocurrency celebrities have come when government agencies have begun targeting cryptocurrency platforms.
The past 12 months have seen the collapse of many prominent industry organisations and protocols like Luna, Three Arrows Capital, Celsius, Voyager, FTX and Almeda. Many speculators believe these events have negatively impacted the crypto industry, causing the recent scrutiny.
Celebrities are involved with these lawsuits mainly because they have massive online audiences who are influenced by the celebrity’s actions. If a celebrity discusses a new cryptocurrency, it can cause their followers to rush in and buy, hoping to generate a profit.
However, these celebrities are often paid for these promotions or own the coin and sell it once their audiences buy. This is sometimes known as a pump-and-dump scheme.
The cryptocurrency industry is under scrutiny from many powerful actors across the United States and the rest of the world. Most celebrities have accidentally been caught up as they quite likely did not realise the consequences of their actions.
That said, cryptocurrency is an emerging technology, and it is common for novel industries to undergo massive regulatory and governmental crackdowns in their early years. The same thing can be seen with new AI technology, Chat GPT, being banned in Italy amid privacy concerns.