Bitcoin has been all the talk by way of investors and the question arose this week when prices dropped as to the legality of a Bitcoin exchange shutting down when prices were falling. It is alleged that trade halts were made for a period of two hours. The price drop was rather substantial from $20,000 to $11,000. It is said that the outage was for reason of technical difficulties and not intended to rescue the currency from free-falling, as the legality of doing that would be questionable. In fact, it is illegal for trading to be put to halt without following the Securities and Exchange Commission’s guidelines. Foreign currency exchanges are less regulated, and the for such reasons there are increased risks for loss, malfunctioning trading systems, and fraud.
Some even speculate that Bitcoin exchanges may stop completely if much fraud, technical difficulty, glitches or hackers and/or malware become common. Legal precedent set in this area of law is rare, though civil litigation in this area has started. The stoppage has certainly started lawsuits claiming damages. Mt. Gox, a bitcoin exchange in Tokyo, collapsed after it halted withdrawals and eventually conceded that its holdings, worth approximately $65 million at the time, had been stolen by hackers.
The site also came under great scrutiny for possible “insider trading” among its employees before the site started to support Bitcoin Cash, a fork of the Bitcoin project. CEO Brian Armstrong pledged that the company will investigate those allegations internally.
In a previous decision in around late August, a federal judge ordered the return of 11,000 bitcoins worth about $30 million in a decision considered the first of its kind. The ruling stemmed from a class action in which plaintiffs alleged that the defendant had stolen their money and fled to China. The judgment highlights the decentralized nature of bitcoin, with no person or authority in charge. It makes it difficult for winning plaintiffs to get their bitcoins that they are entitled to back. Continue reading ›