New research from HedgewithCrypto has analysed crypto lawsuits from both the SEC and other class action suits to reveal the most common types of crypto lawsuits filed in the last five years.

Almost half of all lawsuits are related to this type of crime because the SEC believes that “of the nearly 10,000 tokens in the market, the vast majority are securities”; this means that they would be subject to US securities laws (including regulation and registration of crypto assets), and consequently the SEC see most of the crypto industry to be operating illegally.

Ranking second with 12 lawsuits in the past five years is an initial coin offering (ICO) fraud. An initial coin offering (ICO) is a type of funding for cryptocurrencies, and the currency is sold to investors in the form of tokens or coins. Once enough money has been raised by the ICO, the cryptocurrency launches in full. However, they don’t often work that way as the unregulated nature of ICOs (compared to sourcing startup funding from banks or venture capitalists) leads to a large number of cryptocurrency scams and fraud.

In an ICO scam, a coin will be offered without the intention of ever using the investors’ money on the coin. Instead, the fraudsters take the investors’ money for their own. There are many examples of cryptos that have failed shortly after the ICO and are also referred to as a ‘rug pull’.

The third most common type of crypto lawsuit is stealing investor funds and defrauding investors, with 10 lawsuits filed by the SEC in the past five years. This can come in many other forms, such as simple theft of investment funds or offering a fake or misleading product.

FURTHER FINDINGS:
2022 had the most crypto-related lawsuits ever, with a total of 41 suits being filed, increasing by 46% since 2021.
Between 2018 and 2022 crypto lawsuits have increased by over 40%, with 30 lawsuits filed in 2018 compared to 41 in 2022.