{"id":4857,"date":"2018-08-29T15:32:16","date_gmt":"2018-08-29T19:32:16","guid":{"rendered":"https:\/\/abovethelaw.com\/?p=511414"},"modified":"2018-08-29T15:32:16","modified_gmt":"2018-08-29T19:32:16","slug":"if-you-lost-money-in-cryptocurrencies-are-you-a-victim-of-fraud-or-just-a-bad-investor","status":"publish","type":"post","link":"https:\/\/abovethelaw.com\/legal-innovation-center\/2018\/08\/29\/if-you-lost-money-in-cryptocurrencies-are-you-a-victim-of-fraud-or-just-a-bad-investor\/","title":{"rendered":"If You Lost Money In Cryptocurrencies, Are You A Victim Of Fraud Or Just A Bad Investor?"},"content":{"rendered":"

\"\"As the cryptocurrency market corrects itself from the bubble high last year, people will lose money because they bought them at the peak of the bubble. Alternatively, there is a subset of people who purchased a cryptocurrency at an introductory price from a promoter with the expectation that the currency\u2019s value will increase in the foreseeable future. However, for one reason or another, the value of the currency did not increase and in some cases, has lost value.<\/p>\n

Aggrieved investors have filed lawsuits against some of these cryptocurrency promoters alleging breach of contract, securities fraud, and violations of state fraudulent misrepresentation laws.<\/p>\n

While I am sympathetic to those who lost money from the cryptocurrency bust, I question whether these people are really the victims of fraudulent misrepresentation. When the smoke clears, did they simply make a bad investment decision? Let\u2019s look at this from a common law fraudulent misrepresentation angle.<\/p>\n

To succeed in a common law fraudulent misrepresentation case, the plaintiff must show that he suffered damages because he entered into a contract by justifiably relying on the defendant\u2019s materially false representations. In the case of cryptocurrency promotions, there are two issues to consider.<\/p>\n

The first is whether the defendant made a false representation. Of course, that depends. If the defendant promoter says something like \u201cPurchase our coins now because its value will increase exponentially when they hit the market\u201d, that would be considered sales puffery and not a false representation. In my opinion, it could still be puffery even if the promoter gave more specific number projections (example: \u201cthe value of the coins will triple in six months\u201d) if the promoter does not have a credible basis for making that claim.<\/p>\n

But let\u2019s assume the promoters\u2019 statements are materially false. The second issue is whether the plaintiff\u2019s reliance on the promoters\u2019 statements was justifiable or reasonable based on other information available at the time. Back in 2017, even as the value of Bitcoin skyrocketed and the 1000+ copycat coins followed suit, there were numerous articles warning readers that the value of cryptocurrencies are very volatile and the value may one day go down. Dogecoin was started as a joke currency<\/a> but somehow became a valuable currency with a market cap exceeding $60 million. One notable statement<\/a> came from Jamie Dimon, the CEO of JPMorgan Chase where he called Bitcoin a fraud.<\/p>\n

I look back at Judge Melvin Schweitzer\u2019s infamous and heavily criticized<\/a> opinion in Gomez-Jimenez v. New York Law School.<\/em> As most longtime readers know, he dismissed a class action lawsuit brought by recent law school graduates (some with over $150,000 in student loan debt) against their alma mater claiming that they matriculated because they relied on the school\u2019s post-graduate employment and salary figures. These figures were later found to be misleading.<\/p>\n

However, Judge Schweitzer called college graduates a \u201csophisticated subset of education consumers\u201d capable of sifting through data and weighing alternatives before considering going to law school. Based on the fact that other information was available that debunked the law school\u2019s numbers, he believed that the students\u2019 reliance on the law school\u2019s self-reported employment numbers were unreasonable.<\/p>\n

Again, while I sympathize with those investors who lost a large chunk of their savings or earnings, we should be honest. Generally, relying on a promoter’s projected profits is unreasonable. A quick internet search would have shown many articles warning crypto investors about the risk of loss of investment. They bought these coins hoping that someone else would purchase them at a higher price and thus realize a profit. They knew what they were getting into and that there was a potential for loss.<\/p>\n

Now it would be a different story if the crypto promoters suddenly disappeared with the investors\u2019 money while not doing anything. Or if there was evidence that the promoters did not intend use the investors\u2019 money for cryptocurrency purposes.<\/p>\n

While the bad actors in the crypto business will have to face multiple causes of action, I am unsure whether the fraud angle will succeed. While some promoters made lofty promises with a picture of their Lambo, this may be unactionable puffing. Also, there were many articles warning people to be careful when investing in Bitcoins and other cryptocurrencies, even during the crypto boom. With all of this information out there, these investors may be considered a \u201cspecial subset of cryptocurrency consumers\u201d and their reliance on a promoter\u2019s words alone might not be reasonable.<\/p>\n

\n

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at\u00a0sachimalbe@excite.com<\/a>\u00a0and via Twitter:\u00a0@ShanonAchimalbe<\/a>.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Not every shell game is a fraud.<\/p>\n","protected":false},"author":633,"featured_media":428802,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11,1],"tags":[3048,7],"class_list":["post-4857","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology","category-uncategorized","tag-cryptocurrencies","tag-technology"],"acf":[],"yoast_head":"\nIf You Lost Money In Cryptocurrencies, Are You A Victim Of Fraud Or Just A Bad Investor? - Above The Law's Legal Tech Non-Event<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/abovethelaw.com\/legal-innovation-center\/2018\/08\/29\/if-you-lost-money-in-cryptocurrencies-are-you-a-victim-of-fraud-or-just-a-bad-investor\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"If You Lost Money In Cryptocurrencies, Are You A Victim Of Fraud Or Just A Bad Investor? 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