Want to sue a crypto project that ripped you off? That will be $1 million, thank you. Luckily, there are options for those who face the
Want to sue a crypto project that ripped you off? That will be $1 million, thank you. Luckily, there are options for those who face the daunting prospect of spending a small yacht’s worth of money in lawyer fees for their chance at crypto justice.
In practice, the majority of victims of international blockchain scams find themselves with little hope of recovering their money. According to crypto law expert Jason Corbett, a normal court case to recover $10 million–$20 million dollars in the blockchain sector can easily cost between $600,000 and $1 million, with an average timeline of 2.5 years.
But there are a range of cheaper and better options to get a successful outcome — if you learn how to work with the system. Legal investment funds can finance your case for a share of the judgement — sort of like a VC firm for lawsuits.
“The vast majority of lawsuits — up to 95% — are privately settled before they go to court,” Corbett says.
Common blockchain disputes
Corbett has six years of experience in crypto law as a managing partner of international blockchain-specialized boutique law firm Silk Legal. Speaking with Magazine about his new crypto litigation financing project Nemesis, Corbett notes a clear “increase in disputes stemming from deals gone wrong, contractual breaches and bad actors over the past months” due to the bear market, which has seen many projects go sideways.
There are a variety of common disputes involving blockchain, from misuse of funds to smart contract failures, which are listed below.
Misuse of investment proceeds happens when “fundraising proceeds go to founders’ Lambos and villas” instead of legitimate business needs, he explains. While the occasional boat party networking or team-building event might be justifiable, salary packages are the main permissible routes by which invested capital can flow to the founders — even dividends can only be paid from profit, not incoming investments.
The sale of fraudulent crypto happens when a token is sold to investors based on false claims. A possible (though not tested in court) example is found with the automated market maker protocol SudoRare, which suddenly shut down and disappeared with investors’ money. Such cases can easily cross the threshold into criminal territory, according to Corbett. However, he admits that pursuing the culprits can be very difficult unless the scammers have been reliably identified.
Illegal securities offering. One way that investors in flopped tokens can attempt to claw back money is by claiming securities fraud, demonstrating that the offering was illegal in the first place, such as an unregistered securities offering masquerading as a utility token sale. “There are currently several U.S.-based class action lawsuits running against U.S. projects,” such as those against Bitconnect and Solana. Corbett explains that such claims fall under securities law, being civil claims as opposed to those brought by the likes of the SEC classifying projects like Ripple as securities.
Difficult organizations to sue. Another area that can present a legal minefield is DAOs, which are often “not registered anywhere and don’t have any kind of legal personality, and individuals are just working on their behalf.” Corbett warns that such arrangements can easily expose unsuspecting DAO workers to vicarious liability since the entity they believe they are acting on behalf of may not actually exist.
Even smart contract disputes can lead to the courtroom. “If two parties agree to act according to a certain trigger on a smart contract, but it somehow malfunctions, that can put a lot of liability on the coder or smart contract audit firm,” Corbett says. In such cases, the insurance policies of audit firms become critical.
When it comes to IP infringement, it is easy to imagine NFTs where copyrighted images are being minted and sold without permission. Even code, however, can be protected by copyright or patents, in which case implementing the code of other projects — or even forking certain tokens — may result in a serious claim. (This is obviously not the case with open-source software, which is why Uniswap’s code has been forked so often.)
High costs
Irena Heaver, a Dubai-based lawyer specializing in blockchain, explains that while the aggrieved party is responsible for funding civil lawsuits, criminal cases are pursued by the state. As criminal cases deal with criminal matters rather than mere torts or “mistakes,” like a breach of contract and can result in prison instead of monetary judgements, the bar is set much higher in regard to evidence.
As an ideal, a criminal conviction can happen only when all reasonable doubt is removed, whereas a civil judgement can be made on a balance of probabilities,…
cointelegraph.com