New research by Bloomberg Law has identified a 45 percent drop in the number of lawsuits concerning the theft of cryptocurrency that were filed in the USA last year.
Despite rising cybercrime, complaints blaming crypto theft on lax company security fell to a mere 11 cases in 2023 after peaking at 20 new cases a year earlier, according to an analysis of Bloomberg Law’s docket data.
Bloomberg suggests the main driver of this change is the increased sophistication of the wording of contracts. Telcos and cryptocurrency exchanges have apparently added clauses to contracts that push victims of cryptocurrency theft towards private arbitration instead of seeking redress in open court. They are also placing limits on their maximum financial liability.
Limiting liability is a sensible and fair way to rebalance risk for all concerned. Cryptocurrency investors with balances worth millions of dollars should retain some responsibility for securing their own assets. It is not appropriate for a mass consumer service like the supply of mobile telecommunications to impose the kinds of security demands on customers that would be expected if they were controlling who has access to the equivalent of a bank vault.
Telcos have been too complacent about the risks created when other businesses send one-time passwords by SMS in order to authenticate a customer. Grabbing the prize of additional revenues from the bulk supply of A2P SMS needs to be offset against the cost of motivating criminals to use SIM swaps and other ways of hijacking a customer’s phone account. Of the cases filed in 2023, more than half allege the cryptocurrency was stolen because of an unauthorized SIM swap. Victims of crime are not fussy about who they will sue in order to get compensation. Mobile service providers are “attractive targets” for such lawsuits per Brenda Sharton, leader of the cybersecurity practice at international law firm Dechert LLP.
Proactive management of the legal risks surrounding cryptocurrency is helping businesses to reduce the number of lawsuits they face. Sterling Miller, CEO and senior counsel at US law firm Hilgers Graben PLLC, told Bloomberg that the fall in the number of lawsuits was related to the requirement for arbitration being written into contracts. Plaintiffs can potentially gain more compensation if they obtain a trial by jury, but Bloomberg’s data shows it is rare for such complaints to be decided by juries.
You can read Bloomberg’s summary of trends in cryptocurrency lawsuits here.
