Staying ahead of the class: Crypto faces rising class actions

As the cryptocurrency sector matures and regulatory expectations rise, private claims involving crypto exchanges and product issuers are increasing as a result of increased scrutiny and a lack of clear regulatory frameworks and expectations.

Class actions are fast emerging as a key litigation risk for crypto exchanges, miners and businesses, particularly as client and investor expectations shift in line with traditional financial markets. While many in the industry have long called for fit for purpose and clear regulatory frameworks, the lack of harmonised global standards leaves exchanges vulnerable to allegations of disclosure failures—especially around product disclosure, AML/CTF compliance and cybersecurity. This underscores the need for exchanges to not only uplift internal controls but proactively meet disclosure expectations to limit the risk of shareholder and consumer litigation.

The rise of class actions poses a significant threat to crypto exchanges and companies, even as the risk of regulatory action has abated in some jurisdictions like the United States. While exchanges are frequently targeted due to their visibility and backing, and perceived profitability, the broader reputational damage to the industry is often associated with product issuers. Memecoins, for example, are high-risk offerings that are sometimes linked with alleged insider trading and pump-and-dump situations. While individual investors losses may be modest, a class action can provide a vehicle for advancing broader allegations of misleading or unconscionable conduct across a group of investors or clients or alleging breaches of securities laws which regulators have backed away from pursuing. Investors may also look to exchanges which list these assets as litigation targets with deeper pockets.

Coinbase, one of the world’s largest cryptocurrency exchanges, is the subject of a class action lawsuit filed by shareholders in the US District Court for the Eastern District of Pennsylvania. The lawsuit alleges that Coinbase failed to adequately disclose information relating to its compliance with UK anti-money laundering and counter-terrorism financing (AML/CTF) regulations, as well as details about cybersecurity incidents. According to the complaint, these alleged omissions and misrepresentations led investors to purchase Coinbase shares at inflated prices, resulting in significant losses when the information was later revealed. The lawsuit seeks compensation for those affected over a four-year period, spanning from Coinbase’s 2021 public listing through to May 2025.

Binance and its founder Changpeng Zhao faced a class action following Zhao’s criminal conviction and the platform’s settlement with US regulators. Further, a 'patent troll' has been seeking to enforce patents claiming bitcoin miners are infringing patents. Plaintiff law firms in the United States are also increasingly targeting memecoin projects which have resulted in investor losses.

As regulators continue to demand greater transparency, crypto platforms and product issuers face growing risks around how they manage compliance and disclosure. These risks are expected to grow as the industry enters the regulated sphere and continues to scale. Recent actions are an important reminder to industry to ensure that they provide clear and accurate disclosure to investors and consumers and proactively address compliance issues.

By Steven Pettigrove, Luke Misthos, Emma Assaf with Michael Bacina