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Investors in Cryptocurrency Scam Ask 11th Circuit to Revive Class Action

The future of a class action lawsuit brought by online investors who say they were scammed by a Miami Beach-based cryptocurrency startup out of over $32 million hinges on a federal appeals court’s decision on the timeliness of a court filing.

ATLANTA (CN) --- An attorney for a class of investors who claim they were scammed out of over $30 million by defunct cyptocurrency startup Centra Tech asked an 11th Circuit panel Thursday to reverse a ruling tossing out a class action lawsuit due to the late filing of a certification document.

Seven investors who purchased Centra Tech tokens sued the company in 2017, claiming that the startup marketed an “initial coin offering” to raise money for the creation of “the world’s first multi-blockchain debit card with a smart and insured wallet.” Unfortunately, the debit card didn’t exist.

The company’s founders were indicted for defrauding investors by selling them unregistered securities backed by digital currencies.

Centra Tech co-founder Sohrab “Sam” Sharma was sentenced earlier this month to eight years in prison for his role in the scheme and ordered to forfeit $36 million. Fellow co-founder Robert Farkas was sentenced to a year in prison and ordered to forfeit $347,062.

Arguing on behalf of the class Thursday, attorney John Carriel of Zelle told a three-judge panel of the Atlanta-based appeals court that the federal court’s analysis of the case was inconsistent with precedents set by other Florida federal courts.

Carriel told the panel that U.S. District Judge Robert Scola, Jr. “completely ignored the procedural history of the case” which included “procedural hurdles” that lengthened the time it took for plaintiffs to move for class certification.

The class’s motion for certification was not filed until 18 months after its initial complaint and six months after its amended complaint.

In a September 2019 order, Scola found that the delay was untimely. The judge also ruled that the class failed to show that it could identify potential class members who purchased Centra Tech tokens.

Senior U.S. Circuit Judge Stanley Marcus, a Bill Clinton appointee, noted that there was a stay in place for an “extended” period of time in the case and asked whether the plaintiffs could have filed a motion seeking class certification while the stay was in effect.

“We were operating under the impression that the district court was fully aware of this,” Carriel explained.

“There was nothing more we could’ve done. We asked for a schedule. It was out of our hands,” Carriel said. “I’d just like to stress that we followed all the rules, we did everything we could. I don’t know what we could’ve done differently.”

But an attorney for Centra Tech told the panel that the district court was “well within its discretion to find the plaintiffs’ motion was not timely.”

“When would it have been timely for them to seek class certification here? When should they have done it?” Marcus asked. “They sought [certification] in June 2019 and the district court said ‘Too late, you lose, not timely.’ The case had been pending almost 18 months. During that 18-month period, at least 14 months were consumed with a stay certainly covering discovery... When should they have filed this to make it timely?”

“The rule says at an early practicable time. There’s no bright line case law on what’s an early practicable time,” Florida attorney Gennaro Cariglio argued on behalf of Centra Tech.

Cariglio told the panel that the class should have raised the issue with the district court and asked for more time due to the stay.

But U.S. Circuit Judge Barbara Lagoa, a Donald Trump appointee, asked why it should be the class’s job to inform the judge of court procedures.

“They could’ve alerted the court to their need for discovery… but they never alerted the court at all,” Cariglio answered.

Cariglio also argued that the outcome of the case is ultimately irrelevant since another court has already entered a preliminary order of forfeiture impacting the same funds sought by the class.

“All the Ether that they’re seeking in this civil class action has been seized by the government,” Cariglio said.

The FBI seized digital funds raised from victims who purchased Centra Tech tokens in 2018. The U.S. Marshals Service sold the seized Ether units for $33.4 million this year. According to a statement from the Department of Justice, the funds will be available for potential use in a remission program to compensate victims of the fraud after a final order of forfeiture is entered in Sharma’s case.

“At the end of the day, all of that Ether, everything we’re fighting about, everything we’re here about today, is property of the government,” Cariglio said.

Marcus and Lagoa were joined on the panel by Senior U.S. Circuit Judge R. Lanier Anderson II, a Jimmy Carter appointee.

The panel did not indicate when it will reach a decision in the case.

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