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Judge rejects class certification in $400M Mt Gox fraud lawsuit

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A federal judge has rejected a bid for class certification from clients of the defunct Japanese Bitcoin exchange Mt. Gox, which was forced into bankruptcy in 2014 following a major hack.

Judge Gary Feinerman made the declaration in the U.S. District Court for the Northern District of Illinois on Tuesday, June 22 saying it would require 30,000 “mini-trials” to find otherwise.

The move handed a victory to former Mt. Gox CEO Mark Karpeles, who has argued that a compensation plan in Japan would serve better than litigation in the United States.

Before a class action lawsuit can proceed, the class must be certified which ensures that the plaintiffs have enough similarities to proceed with litigation against the defendant as part of one larger case.

The judge reasoned that the lead plaintiff’s theory about fraud in the $400 million suit turned on Karpeles’ drafting and dissemination of the Mt. Gox terms of use and alleged misinterpretations, according to Law 360.

Greene originally opened an account with Mt. Gox in early 2012, and claimed to have relied on representations made in the exchange’s terms of service in assessing the platform’s security.

During a deposition in June 2018, Greene noted that he could not “remember” the terms displayed on the website. The judge argued that whether 30,000 users read or understood the contents of the terms of service “cannot yield a common answer across all or even most of the class.”

In essence, the class action cannot be certified unless there are similar circumstances for all of the plaintiffs, Judge Feinerman added:

“No reasonable fact-finder could simply assume that all or most of those users read or otherwise learned of the terms,”

He added that even if all or most Mt. Gox users were aware of the terms, that doesn’t mean all or most understood what they allegedly promised the way Greene did.

“Holding over 30,000 mini-trials to determine how each class member understood, and whether each class member relied upon a contract they accepted nearly a decade ago would present insurmountable difficulties,”

Related: Mt. Gox CEO Slams Plaintiff for Adjusting Fraud Allegations Mid-Case

This is the Mt. Gox customers’ second attempt at obtaining class certification following a rejection in 2018 by Judge Feinerman stating at the time that testimony from the lead plaintiff showed he was too vulnerable to unique defenses.

The lawsuit resulted from the shutdown of Mt. Gox in February 2014, which came after it admitted that it had lost $400 million in BTC. In March 2019, Karpeles was acquitted of embezzlement charges but found guilty of tampering with financial records.



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SEC has no authority over crypto, CFTC commissioner argues

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Amid the United States Securities and Exchange Commission (SEC) expanding the scope of oversight of the cryptocurrency industry, a commissioner with the Commodity Futures Trading Commission (CFTC) argued that crypto regulation doesn’t fall under the SEC’s jurisdiction.

CFTC commissioner Brian Quintenz took to Twitter on Wednesday to declare that cryptocurrencies like Bitcoin (BTC) should be regulated by the CFTC rather than the SEC.

Quintenz stressed that cryptocurrencies are commodities and thus fall under the CFTC’s jurisdiction, as opposed to securities that are regulated by the SEC, stating:

“Just so we’re all clear here, the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil….or crypto assets.”

Quintenz’s remarks came just about half an hour after former CFTC chairman Christopher Giancarlo made a similar statement on Twitter, arguing that the CFTC is the only U.S. regulatory agency that has experience regulating markets for Bitcoin and crypto.

“If the Biden Administration is serious about sensible cryptocurrency regulation, it needs to nominate a CFTC chairman,” Giancarlo noted.

The U.S. House Committee on Agriculture, a standing committee in the U.S. House of Representatives, subsequently supported Quintenz’s statement. The committee’s official Twitter account argued that crypto is “bigger than the SEC,” and the Congress “needs to write the rules of the road to protect investors and innovation in the digital economy.”

Related: ‘Nakamoto’s innovation is real,’ says SEC Chair Gary Gensler

The new statements apparently come in response to recent remarks by the SEC chairman Gary Gensler calling for increased regulatory oversight of the crypto industry to expand the regulatory scope with decentralized exchanges. Gensler reportedly outlined that there’s been much discussion about what kind of digital assets should fall under the SEC’s purview as the authority previously confirmed that major cryptocurrencies like Bitcoin and Ether (ETH) were not securities.