USA Trends and Developments Contributed by: Steven Molo, Robert Kry, Megan Cunniff Church and Walter Hawes, MoloLamken
and guidelines affecting digital assets and rec - ommend which should be rescinded or modi - fied. In instructing the working group to propose a federal regulatory framework, the Order directs the working group to consider “market structure, oversight, consumer protection, and risk man - agement” . The SEC has already begun accept - ing public comments to inform the development of that framework. If adopted, it will likely rep - resent a stark contrast to the existing regulatory approach. Consistent with that policy shift, the SEC and CFTC have also signalled a shift in enforce - ment priorities. Both agencies have stated that they intend to avoid “regulation by enforce - ment” going forward, with the SEC voluntarily dismissing several ongoing cases alleging reg - istration failures and related violations against major cryptocurrency companies. But each agency has also expressed commitment to pur - suing fraud and market manipulation in digital asset markets, and each has announced signifi - cant fraud-related cryptocurrency enforcement actions since President Trump’s inauguration. Private Plaintiffs May Face Difficulties Pursuing Fraud Claims in Deprioritised Areas Private plaintiffs and victims of fraud will retain many of the same legal tools to pursue fraud claims under the new administration. The impo - sition of a new regulatory framework governing digital assets, for example, would not neces - sarily limit the tools available to private plain - tiffs to pursue cryptocurrency fraud. Even if the new framework restricted private claims under the federal securities laws, plaintiffs could still bring common law fraud or conversion claims.
Especially if the administration follows through on its commitments to protect retail investors and combat fraud in the industry, victims should also still be able to blow the whistle on digital asset frauds and seek restitution if successful enforcement actions are brought. Nonetheless, the shifts in fraud-related enforce - ment may create practical difficulties for private plaintiffs that limit certain avenues for recovery. For example, because the FCPA does not confer a private right of action, the absence of FCPA enforcement will prevent victims from seeking restitution to recover their losses. Without public enforcement of the FCPA, victims may be forced to find an alternative legal theory, and may bear the substantially higher legal costs of proving that theory in court. Follow-on securities law cases brought by shareholders injured by foreign bribery will also suffer, as those plaintiffs will be unable to benefit from the government’s investi - gation or public disclosures in FCPA resolutions. In the cryptocurrency industry, the new regula - tory framework may deprive plaintiffs of criti - cal information to detect and build their case. If the new framework treats cryptocurrency or investment contracts relating to cryptocurrency differently from securities, digital asset purchas - ers may not have access to the broad range of information required to be disclosed under the securities laws. Without such information, fraud victims may face increased costs in amassing the proof necessary to bring a fraud claim. The contemplated framework may thus have signifi - cant impacts on fraud victims and other private plaintiffs.
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