Law Firm McCarter & English Faces Investor Suit Over Opinion Declaring Voyager Token Not a Security

On Tuesday, February 6, 2024, a group of Voyager Digital investors filed a lawsuit in the United States District Court for the Southern District of Florida against New Jersey-based law firm McCarter & English. In the proposed class action suit, the investors alleged that McCarter & English provided a “bogus legal opinion” that led customers to lose over $4 billion following the collapse of cryptocurrency exchange Voyager Digital Holdings.

Voyager Digital filed for Chapter 11 bankruptcy in July 2022 after the crypto markets crashed, leaving customers unable to access their funds on the trading platform. In their lawsuit, the investors claimed that McCarter & English advised Voyager in 2021 that its VGX token was not a security regulated by the Securities and Exchange Commission (SEC). The legal opinion provided legitimacy that allowed Voyager to attract new investors and partnerships.

However, the plaintiffs argue that McCarter & English ignored several SEC enforcement actions and court decisions in reaching their conclusion. They assert the firm failed to properly scrutinize facts given to them by Voyager about the VGX token. If deemed a security, the token sale would have been subject to federal regulation. McCarter & English represented Voyager from March 2021 until September 2022 on various legal matters, including a due diligence questionnaire from the NBA.

The key legal question in the suit is whether cryptocurrency tokens should be defined as securities under SEC laws. It is a complex issue that courts have grappled with, producing conflicting rulings. While a New York judge said last year that Ripple’s XRP sales were not securities offerings, another judge ruled that crypto sales to the general public can meet the definition. The SEC is still actively litigating similar cases against other firms.

Experts noted this presents a challenging situation for law firms asked to provide opinions in the rapidly evolving crypto sector. The regulations and legal precedents are still being determined. McCarter & English said it would “vigorously defend” its advice, asserting the complaint contained “many factual inaccuracies.” If proven, allegations of gross negligence and RICO violations against a law firm for a legal memo would be difficult to establish given the unsettled nature of crypto regulation.

Nevertheless, the suit underscores the risks companies and their advisers take on in the crypto space, where the rules of the road are still being written. It also represents at least the second investor action targeting a law firm that counseled a failed cryptocurrency business.

Please contact BlockTribune for access to a copy of this filing.