As cryptocurrency cases rise, all courts are being forced to determine whether crypto is a security.
In at least one recent Delaware case, the Superior Court determined that crypto is a security, and calculated damages based on valuation.
This will have an interesting impact on safe harbor defenses in claw-back litigation.
Relying on the U.S. Supreme Court’s investment-contract test in S.E.C. v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946), the Court found that the cryptocurrency was a security, that the plaintiffs’ economic harm arose from an initial coin offering, that plaintiff Diamond Fortress had committed its software to defendant’s venture as a common enterprise and was exposed to potential financial harm, and that plaintiffs expected to derive profits from the venture.
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