Crypto firms subject to UDAAP?
Punitive actions may now be possible against crypto companies claiming exemption from federal securities laws, especially in California.
During a recent California Superior Court hearing in the ongoing class action against Ripple Labs Inc., the court suggested that transactions involving cryptocurrencies that are not being described in writing as securities may be subject to attack under California’s Unfair, Deceptive, Abusive Acts or Practices Act (UDAAP). The application of UDAAP laws to crypto companies’ transactions could result in legal and regulatory adverse rulings for a variety of business practices. Misleading or negligent promotional collateral may expose crypto companies to fines and penalties under UDAAP.
The Court in Ripple Labs Inc. has already concluded that the company acted as a seller in issuing its tokens.
Practice tip: Companies seeking to protect themselves from UDAAP claims may want to introduce arbitration agreements and class action waivers into their terms of service.
Listen to free audio handbooks in the Private Placement Handbook Series @amazon.com/author/privateplacementadvisors.