Biggest crypto legal cases of 2024: FTX, Terraform, UK crackdown

In the second part of this article covering the biggest crypto legal cases of 2024, we revisit the cases of FTX and Terraform, and cover the multi-pronged sweep of crypto companies in the United Kingdom.

Read about the Genesis Heist, the Celcius fraud, and the Binance lawsuit in the first article.

The FTX collapse

The collapse of FTX and its affiliated trading firm Alameda in late 2022 was what truly set off a tsunami of consequences in the crypto industry. The domino of falling crypto companies, mainly since they all invested in or borrowed from each other, continued into 2024, culminating in one of the largest settlements in crypto history.

In this case, the Commodity and Futures Trading Commission (CFTC) secured a $12.7 billion settlement, with the funds earmarked for repaying customers and creditors. 

The downfall of FTX, respected by all except for, arguably, its closest rival Binance, as one of the most prominent and reliable exchanges, has highlighted the dangers of inadequate risk management and oversight.

Not dissimilar to the financial and banking world, FTX stinked of reckless trading practices, unchecked liquidity and gross mismanagement. From videogame-playing CEOs to drug-fuelled cruiseship parties, it was pretty clear that FTX and Alameda had done so much that put customer funds at serious risk.

We recall once more the irresponsible attitudes in the Mt Gox case of 2014 where sensitive data was carelessly stored within physical reach of employees, both cases highlight the importance of robust security measures and transparent operational practices. However, the scale and impact of the FTX collapse are far greater, reflecting the exponential growth of the crypto market over the past decade.

Many believe FTX was the wake-up call for the industry, ensuring that players take on stricter regulatory oversight and better risk management practices. Then again, that’s what they said about Mt Gox ten years ago.

The Terraform Labs scandal

Terraform Labs, once the brightest young plaything in the decentralised finance (DeFi) space, faced a series of charges in 2024 related to fraud and misrepresentation.

The company's collapse – or specifically, the collapse of its Terra/Luna stablecoins – in mid-2022 marked a significant turning point in the crypto market, leading to heightened regulatory attention and a slew of lawsuits against its founders. The charges against Terraform Labs included allegations of misleading investors about the stability and security of its flagship project, the TerraUSD (UST) stablecoin.

The collapse of UST, which was supposed to be pegged to the US dollar, led to billions of dollars in losses for investors and exposed the folly of the blind trust that people had put into DeFi.

The ensuing lawsuits against Terraform Labs and its founders symbolise the ongoing problems of transparency, security, and investor protection, even in a supposedly decentralised infrastructure.

Will we see more robust regulatory frameworks to oversee the development and deployment of stablecoins and other DeFi products? If anything can be learned from Tether, the issuer of the oldest stablecoin, USDT, then we should expect that “DeFi” claimant stablecoins will always be far less regulated than centralised ones.

The UK crackdown on illegal crypto

Only as recently as 2022, crypto ads for memecoins like Shiba Inu were prominently displayed in locations all over the London Underground and on public buses. But the crypto crash that same year, which led to many people losing money and the FCA being inundated with complaints, led to a quick regulatory reaction.

Rather than focus on specific cases, we take a look at the aggressive crackdown by the United Kingdom's Financial Conduct Authority (FCA)’s on illegal crypto activities involving multiple crypto companies.

One of the most notable cases involved the arrest of two individuals linked to a $1.2 billion illegal crypto exchange; exchanges in the UK must be licenced by the FCA. These actions were part of a broader effort to combat money laundering, fraud, and other illicit activities in the crypto space. In September 2024, an individual was arrested for running unregistered crypto ATMs.

These cases also underscored the global nature of crypto-related crimes, with illicit activities often spanning multiple jurisdictions and requiring coordinated enforcement efforts.

The UK’s actions compare to the long arm of the law in the US, when in 2020, the US Department of Justice went after BitMEX, an exchange that supposedly operated offshore, but served US citizens

This also marks a change in direction of the FCA approach. Previously more hands-off, even with the introduction of the Temporary Registration Regime for crypto asset businesses in 2020, it does appear that the UK is now very serious with its requirement of crypto businesses to register with the FCA and comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.

Conclusion

The legal landscape of the cryptocurrency industry in 2024 has been shaped by a series of high-profile cases that have tested the limits of regulatory frameworks and highlighted the vulnerabilities of digital assets.

From sophisticated phishing attacks and bankruptcy fraud to regulatory crackdowns on unregistered exchanges and illegal crypto businesses, it is clear that regulatory bodies around the world are increasingly committed to enforcing compliance and protecting investors.

We often say that regulators and the law are always many steps behind an industry that adapts and evolves quickly. But the need for enhanced security measures, greater transparency, and robust regulatory frameworks have always been essential when it comes to business, and it will be no different for the crypto industry.

With acceptance and recognition must come a responsibility and willingness to fulfill compliance with regulations, ultimately to protect the investor. If crypto is to have a long-term future, it will be one that is more regulated and resilient.