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Crypto lawyers, Leonard Trial Lawyers, summarize recent federal court decisions

by | Apr 7, 2024 | Firm News

Crypto lawyers, Leonard Trial Lawyers, summarize recent federal court decisions,

FTC v. Celsius Network Inc., No. 23cv6009 (DLC), 2023 U.S. Dist. LEXIS 222009 (S.D.N.Y. Dec. 12, 2023):

Summary: The Federal Trade Commission sued Celsius Network (Celsius”) and its executives for allegedly making false claims about its cryptocurrency services and misappropriating consumer deposits. The court denied the defendants’ motions to dismiss, finding that the FTC had adequately pled claims under the Federal Trade Commission Act and the Gramm-Leach-Bliley Act (“GLB”). The court held that the FTC was not required to meet the heightened pleading standard for fraud claims, and that it could seek monetary relief for GLB violations. The claims against the individual executives survived the motions to dismiss based upon the alleged control they exerted over the company, Celsius, and their alleged knowledge of the wrongdoing at issue Accordingly, the court’s denial of the motions to dismiss allowed the FTC’s case to proceed against Celsius and its executives for the alleged misconduct arising out of their cryptocurrency services.

Material Facts: Celsius offered cryptocurrency services, including earning interest on deposits, loans, storage, and buying/selling crypto. Celsius and its executives allegedly made false claims about those services, including that Celsius did not make unsecured loans; that it maintained sufficient liquid assets; that it allowed withdrawals anytime; that it had $750M in insurance; and that it offered up to 17-18% APY interest. The FTC alleges these statements were false or misleading and that Celsius misappropriated consumer deposits. In June 2022, Celsius froze accounts and filed for bankruptcy in July 2022. 

Controlling Law: Federal Trade Commission Act, 15 U.S.C. § 45, Gramm-Leach-Bliley Act, 15 U.S.C. §§ 6801 et. seq.

The Court’s Rationale: The court reasoned that the claims pled under the FTC Act did not require proving the elements of common law fraud, such that Federal Rule of Civil Procedure 8(a)’s pleading standard applied, rather than Rule 9(b). The court found that the FTC adequately alleged the individual defendants’ authority to control Celsius, and their alleged knowledge of the misconduct to establish individual liability under the FTC and GLB Acts. The court further found that the FTC adequately pled its entitlement to an injunction based upon the seriousness of the alleged conduct, the potential harm to consumers, and defendants’ continued denial of any wrongdoing.  In so finding, the court relied on the plain language of the GLB Act in finding that the FTC can seek monetary relief for violations. 

Procedural Outcome: The court denied the defendants’ motions to dismiss the FTC’s claims. 

United States v. Bitcoin, No. 2:22-cv-2153-TLN-KJN, 2024 U.S. Dist. LEXIS 22509 (E.D. Cal. Feb. 7, 2024) 

Summary: The United States brought an in rem action seeking civil forfeiture of approximately 1.10387626 Bitcoin, alleging that such sum represented property derived from proceeds traceable to a specified unlawful activity. The action arose out of an alleged fraud scheme that occurred on May 19, 2022, targeting a victim in Rocklin, California. The defendant cryptocurrency was seized by the U.S. Secret Service on September 6, 2022. The Government’s motion for entry of default judgment was submitted without a hearing and no opposition was received. The court recommended the motion be granted. 

Key Legal Holdings: The Government provided sufficient notice of the forfeiture action to potential claimants as required by law. The entry of a default judgment was warranted based on the Eitel factors. 

Material Facts: The defendant cryptocurrency was seized in connection with an alleged fraud scheme that targeted “Victim 1.” The Government traced the cryptocurrency to accounts controlled by Ramanbhai. The Government provided notice of the forfeiture action to potential claimants McLellan and Ramanbhai. Neither McLellan nor Ramanbhai filed a claim to contest the forfeiture. 

Controlling Law: 21 U.S.C. § 981(a)(6) – civil forfeiture of proceeds from unlawful activity; 18 U.S.C. § 1956(c)(7) – definition of specified unlawful activity; Federal Rules of Civil Procedure, Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions 

The Court’s Rationale: The Government provided sufficient notice, through publication and direct notice, to the potential claimants. The Eitel factors weighed in favor of the entry of a default judgment based upon the merits of the Government’s claim, the lack of appearance by any claimants, and the absence of evidence of excusable neglect. 

Procedural Outcome: The Magistrate Judge recommended that the District Court Judge grant the motion for default judgment, thus resulting in the forfeiting of all rights to the defendant cryptocurrency.

Leonard Trial Lawyers will continue to keep you update on crypto decisions and rulings from the federal courts.

Michael Leonard (Attorney)

Matthew Chivari (Attorney)

Antonella Maneiro (Law Clerk)

Leonard Trial Lawyers

April 7, 2024