A federal court recently rejected a jury’s verdict concluding that a disputed digital asset was not a security, and ordered a new trial to reconsider the issue. In November 2021, a federal jury in the District of Connecticut had become one of the first to deliver a verdict on the frequently discussed issue of whether cryptocurrencies constitute “securities” under governing securities law. The plaintiffs in Audet v. Fraser had asserted five claims under state and federal securities laws against the director of a developer of virtual currencies, in connection with the company’s solicitation of cryptocurrency products. After an eight-day presentation of evidence, the jury returned a verdict in favor of the defendant, concluding that none of the products constituted investment contracts, and, therefore, that the four cryptocurrency products did not constitute securities.

The plaintiffs subsequently filed a motion for judgment as a matter of law and a motion for a new trial on the basis that the jury’s findings were against the weight of the evidence. On June 3, 2022, the court denied the motions as to three of the challenged products, but granted a new trial to consider whether one of the products, Paycoin, qualifies as an “investment contract.” The decision highlights the continued development of this complex and fact-intensive cryptocurrency classification inquiry, which remains a pointed focus of both civil litigants and the SEC in the cryptocurrency space.

Click here to read Ropes & Gray’s Client Alert on the court’s order.