The Eleventh Circuit Court of Appeals ruled that victims of the Bitconnect Ponzi scheme could file a class action lawsuit, reversing an earlier decision to bar such a case.
Bitconnect is a 2017 endless ICO that crashed in January 2018. The courts of appeal are the highest courts used to assess cases that have already been processed so that a decision can be reversed or upheld.
Alleged victims can now file a class action lawsuit against BitConnect (BCC) and its promoters Glenn Arcaro, Ryan Maasen, Trevon James, Ryan Hildreth and Craig Grant. It is not yet stated whether the prosecution will consider the case.
The original plaintiffs sued for damages from BitConnect and its promoters. The complaint states that the organizers “made fun of federal and state securities laws.”
Law360 wrote on February 22 that the defendants claimed in the Southern District of Florida that because the project was sold using online mass communications platforms, they could not be prosecuted for securities fraud.
The defendants successfully argued that “there can only be liability when the seller sends bids to certain potential buyers.” By using online social media platforms, the promoters claimed that they did not order cryptocurrencies directly from buyers. Without this direct call, they claimed that there was no securities fraud.
However, the district court decided to overturn the lower court’s decision to accept this argument because there was no precedent for the Securities Act of 1933 to prohibit the use of online video in fraud allegations.
Judge Brett S. Grant wrote to the tribunal on February 18:
“Because the Securities Act does not provide free authorization for online orders, we override the district court’s rejection of the § 12 requirement.”
The district court called the lower court’s interpretation of the Securities Act “narrow” and said it was “meaningless” because the person responsible for the security request would have been recognized in a personal letter instead of an online video.
David Silver, a lawyer in the original case against BitConnect and its promoters, tweeted on February 19: “This is a very important decision that will resonate in the years to come.”
This new precedent increases the legal risk and liability of cryptocurrency promoters who use YouTube, Twitter and other online communication platforms to extract cryptocurrency. Judge Grant wrote: “The new method of movement is nothing but a movement.”
In recent years, YouTube has taken down videos and shut down cryptocurrency-related channels that they consider “harmful and dangerous.”
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The Securities and Exchange Commission (SEC) filed a lawsuit against the founders and promoters in May last year after receiving $ 12.6 million in cash and BTC in August in a settlement transaction.
In November last year, the Department of Justice (DOJ) said it plans to sell $ 56 million worth of cryptocurrencies seized from BitConnect as possible compensation for victims in future cases.