The 11th Circuit Court of Appeals ruled that victims of the Bitconnect Ponzi scheme could file a class action lawsuit, overturning a previous ruling that barred such a case.
Bitconnect is a 2017 endless meme ICO that crashed in January 2018. Courts of Appeal are the highest courts that are used to hear cases that have already been heard, so 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. There is no information yet as to whether the applicants will continue the consideration of the case.
The original claimants filed a lawsuit to seek compensation for damages from fraud by BitConnect and its promoters. The complaint states that the promoters “mocked state and federal securities laws.”
Law360 wrote Feb. 22 that the defendants stated in the Southern District of Florida that because the project was marketed using online mass communication platforms, they could not be held liable for securities fraud.
The Defendants successfully argued that “there can only be liability when the seller sends offers to specific potential buyers.” Using online social media platforms, the promoters claimed that they did not directly request cryptocurrencies from buyers. They argued that without this direct solicitation, there was no securities fraud.
However, the district court decided to reverse the lower court’s decision to accept this argument, as there is no precedent in the Securities Act of 1933 to prohibit the use of online video in fraud allegations.
Judge Britt S. Grant wrote to the bench on February 18:
“Because the Securities Act does not provide free access to online inquiries, we are reversing the District Court’s decision to dismiss the Section 12 claim.”
A division of the District Court called the lower court’s interpretation of the Securities Act “cramped” and said it “makes little sense” because it would hold a person liable for soliciting a security in a personal letter rather than an internet video.
David Silver, attorney in the original case against BitConnect and its promoters, tweeted on Feb. 19, “This is an incredibly important decision that will reverberate for years to come.”
This new precedent increases legal risk and liability for cryptocurrency promoters who use YouTube, Twitter and other online communication platforms to scam cryptocurrency. Judge Grant wrote: “The new means of extortion are no less than extortion.”
In recent years, YouTube has taken down videos and shut down cryptocurrency-related channels it considers “harmful and dangerous.”
The 11th Circuit Court of Appeals overturns the trial court’s decision in the Bitconnect case and holds that the misdirected trading of shitcoins on the internet (YouTube, Twitter, etc.) exposes promoters to liability by purchasers of unregistered securities.pic.twitter.com/Oh7BA4GGo2 — Palley (@stephendpalley) February 18, 2022
Related: SEC vs Ripple: Here’s how two 2012 memos could turn the tide in a major cryptocurrency case
The Securities and Exchange Commission (SEC) filed a lawsuit against the founders and promoters last May and received $12.6 million in cash and BTC in a settlement transaction in August.
Last November, the Department of Justice (DOJ) said it plans to sell $56 million worth of cryptocurrency seized from BitConnect as a potential compensatory payment to victims in future cases.