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Morgan Stanley Plans Bitcoin Swap Trading as SEC Leads Cryptocurrency Lawsuit Boom

September 14, 2018

The SEC’s scrutiny of cryptocurrencies has pushed the number of lawsuits related to digital currencies from 15 in all of 2017 to 45 thus far this year, according to a recent report by legal analytics firm Lex Machina cited by law.com. But that apparently isn’t slowing down Morgan Stanley, which plans to offer bitcoin-tied derivatives trading, according to Bloomberg.

The regulator has been behind 30% of the cases filed thus far, Laura Hopkins, legal data expert at Lex Machina, a unit of LexisNexis, tells the legal news and analysis website.

The only entity to have filed more suits has been the law firm Levi & Korsinsky, she tells law.com. Earlier this week, the SEC settled with hedge fund Crypto Asset Management LP, which agreed to a $200,000 penalty over alleged false advertising that it was regulated by the SEC, and reached a separate settlement with TokenLot and its heads Lenny Kugel and Eli Lewittover, who agreed to pay $471,000 in disgorgement plus interest over allegedly acting as an unregistered broker-dealer in peddling digital tokens.

Despite the regulator’s scrutiny of cryptocurrencies, however, Morgan Stanley plans to allow its customers to trade in so-called price return swaps, although it’s still steering clear of bitcoin itself, a person familiar with the matter tells Bloomberg.

Morgan Stanley CEO James Gorman said earlier this year that the firm isn’t going to let clients trade digital currencies directly but would develop a trading desk for their derivatives, according to the news service.

The price return swaps the firm is about to allow are linked to bitcoin futures contracts, and Morgan Stanley will charge a spread for the trades, according to the source, Bloomberg writes. The firm is ready to launch trading after an internal approval process and once there’s enough institutional demand, the source tells the news service. A Morgan Stanley spokesman declined comment to Bloomberg.

LexMachina, meanwhile, has found that the number of the total number of securities cases filed in federal district courts, including lawsuits by regulators such as the SEC, appear to have increased since Jay Clayton took over as SEC chairman May 4, 2017, law.com writes. In all, 1,097 securities cases were filed in 2016, and that jumped 50% to 1,676 in 2017, according to the report cited the website.

“At a very high level, we think it’s an interesting trend because the popular narrative might be that securities enforcement under the new administration, given its deregulatory and other policy positions, might have fallen,” Owen Byrd, chief evangelist and general counsel at Lex Machina, tells the website. “We thought it was noteworthy and newsworthy to uncover that filings had increased at the very time when you might think from other signals in the sphere of news that the trend might have gone another way.”

During the same time frame, however, the amount of damages paid out in settlements and other dispositions related to securities cases has dropped, according to LexMachina, law.com writes.

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The SEC and the Commodity Futures Trading Commission obtained $412 million in penalties in 2017, compared to $570 million in 2016, the report found, according to the website. Other damages arising from securities cases, some of which include CFTC cases, have fallen from $676 million to $364 million, according to LexMachina, law.com writes.

By Alex Padalka
  • To read the Bloomberg article cited in this story, click here.
  • To read the law.com article cited in this story, click here.