Federal Court Lacks Personal Jurisdiction Over Defunct Virtual Currency Exchange

To date, virtual currency exchanges in the United States have structured their operations in an effort to avoid being required to register as an exchange with either the Securities and Exchange Commission or the Commodity Futures Trading Commission. While these efforts may be entirely legal, without the regulatory protections of exchange registration, they could create enhanced risks for customers, particularly in the case of a fund’s insolvency or collapse. A recent federal case highlights these risks and provides a roadmap for asserting personal jurisdiction over a virtual currency exchange. The plaintiff here, a Colorado resident, sought to bring a class action in federal district court for the District of Colorado against the operators of a defunct online digital currency exchange after it froze customer funds and the plaintiff was unable to withdraw his Bitcoin. The plaintiff asserted state law claims for breach of contract, conversion, constructive fraud, and unjust…

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