New Lawsuits Target Cryptocurrency Companies and Their Celebrity Endorsers

We highlighted in a recent post regulators’ clear intentions to bring greater order to the cryptocurrency industry this year. The last three weeks have demonstrated that private litigants are not waiting on regulators to rein in alleged bad actors in the crypto marketplace, however. Two new high-profile lawsuits are taking aim at what plaintiffs call fraudulent activity in this booming industry.

First, alleging that a publicly-traded cryptocurrency company’s “platform is a house of cards, built on false promises and factually impossible representations that were specifically designed to take advantage of the cryptocurrency craze, to the direct detriment of any ordinary investor,” attorneys filed a putative class action on Christmas Eve against Voyager Digital Ltd. and its subsidiary, Voyager Digital LLC.

The pleading claims that the Voyager companies made false representations, including allegedly spurious statements that their cryptocurrency platform is “100% commission-free” and that customers will receive the best possible price on their crypto trades. As a result, according to the complaint, the defendants have reaped billions of dollars in new revenue from persons with little or no investing experience.

The complaint also asserts that Voyager failed to disclose that it intentionally set the price on its platform high enough to collect “exorbitant hidden commissions” on each cryptocurrency trade, and that the price of trading was, in fact, more expensive than trades on other platforms.

Mark Cuban, owner of the NBA’s Dallas Mavericks, is a major stakeholder in Voyager. The complaint alleges that he made comments at a press conference in which he specifically targeted unsophisticated investors “with false and misleading promises of reaping large profits in the cryptocurrency market.”

Counsel for plaintiffs suing the Voyager defendants intend to represent both a nationwide class and a separate Florida class. The putative nationwide class will claim that Voyager violated the New Jersey Consumer Fraud Act, and is also liable for unjust enrichment. The Florida class, which will allege violations of the Florida Deceptive and Unfair Trade Practices Act, would consist of people who used the trading platform to place cryptocurrency investment orders. The lawsuit is pending in the Southern District of Florida.

Meanwhile, in a separate class action filed earlier this month in the Central District of California, Kim Kardashian and boxer Floyd Mayweather face allegations that they misled investors when promoting a little-known cryptocurrency called EthereumMax to their millions of social media followers. That class action accuses EthereumMax and its celebrity promoters of artificially inflating the price of the token by making “false or misleading statements” in social media posts.

An Instagram post by Kardashian last year promoted the EthereumMax cryptocurrency, allegedly spurring a substantial amount of investment activity by unwary investors. “Are you guys into crypto????” Kardashian wrote. “This is not financial advice but sharing what my friends just told me about the Ethereum Max token!” Kardashian proceeded to lavish praise on this new currency.
Mayweather endorsed the token in his boxing match with YouTube star Logan Paul. EthereumMax was, in fact accepted as payment for tickets to the event, a move the lawsuit contends led to significant upticks in trading volumes. Mayweather also allegedly touted  EthereumMax at a major bitcoin conference in Miami, and is said to have done so without disclosing that he was being compensated for his statements about the token.

The lawsuit claims that the named plaintiff, a New York resident, and other investors who purchased EthereumMax tokens between May 14, 2021, and June 17, 2021, suffered losses as a result of the celebrities’ conduct. EthereumMax has lost around 97% of its value since early June, leading to allegations that it is a “scam,” and/or a “pump and dump” scheme. 

EthereumMax “has no connection” to ether, the second-largest cryptocurrency, the lawsuit states. The suit indicates that the company’s name may be an effort to mislead investors into believing incorrectly that the token is part of the Ethereum network.

Whatever the merits of these and other recent legal actions prove to be, there can be little question that crypto companies – and their promoters – do not simply need to be attuned to anticipated new regulatory edicts and scrutiny. They must also be wary of lawsuits alleging misrepresentations of value and overstatements of likely returns on investment. In that respect, the cryptocurrency “Wild West” is only getting wilder.