Latest Developments in $37 Million Cryptocurrency Lawsuit, the SEC v. Arbitrade Saga

The Securities and Exchange Commission (SEC) v. Arbitrade Ltd. et al. case, involving a $37 million cryptocurrency pump-and-dump scheme, has been making waves in the legal landscape, and we believe it’s important to keep you updated on its latest developments. 

The Background on the SEC v. Arbitrade

As many of you may recall, the SEC initiated legal proceedings against Arbitrade Ltd., its executives James Goldberg and Stephen L. Braverman, as well as crypto firm Cryptobontix Inc. and its executive Tory R.J. Hogg. The SEC alleged that the defendants orchestrated a pump-and-dump scheme for their token, DIG, which was allegedly sold as a security. The complaint stated that investors were misled about the venture’s acquisition of $10 billion in gold bullion to back the DIG tokens, leading to asset sales when the token’s price surged. 

Recent Update 

In a recent development, a Florida federal judge, U.S. District Judge Beth Bloom, declined to send the question of whether crypto transactions on public exchanges are securities to the Eleventh Circuit. This decision followed the judge’s rejection of a bid to dismiss the securities enforcement case against Arbitrade Ltd. In her order, Judge Bloom emphasized that the case did not present a pure legal question regarding whether digital asset sales on trading platforms constitute securities transactions. 

James Goldberg and other defendants had sought an immediate appeal, arguing that the case raised a controlling question of law on whether secondary crypto sales are securities transactions. However, Judge Bloom clarified that her previous order on the motion to dismiss focused solely on the SEC’s allegations in the complaint. The Eleventh Circuit would address whether the SEC’s allegations could “plausibly satisfy” the characteristics of an investment contract as defined by the Howey test. The Howey test, a benchmark for determining investment contracts, holds that an investment involves the expectation of profits derived from another’s efforts in a common enterprise. 

Analysis and Implications 

In his appeal, Goldberg pointed to divergent opinions in SEC enforcement cases against Ripple Labs Inc. and Terraform Labs. However, Judge Bloom asserted that these differences were more related to the specific facts and circumstances of each case than a fundamental disagreement on the application of the Howey test. 

Judge Bloom further emphasized that sending the question to the Eleventh Circuit would likely result in a considerable delay, given the fact-specific nature of the Howey test. She emphasised that if the Eleventh Circuit found the SEC’s allegations plausible under the Howey test, an interlocutory appeal would only lead to additional delays and expenses in the proceedings. 

Looking Ahead 

As we continue to navigate through the intricacies of this case, we remain steadfast in our commitment to vigorously represent our clients. The legal landscape surrounding crypto transactions is evolving, and this case presents an opportunity for us to showcase our expertise. For those interested in delving deeper into this case’s details, you can read the original Law360 article here. We also encourage you to subscribe to our blog below in order to stay updated on this case. 

For legal help with blockchain technology and cryptocurrencies, contact one of our experienced attorneys at 305-570-2208. You can also email our lead attorney Eduardo directly at eduardo@ayalalawpa.com.  

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