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A U.S. District Court judge has ruled that investors in a bitcoin-farming operation can continue with their federal suit, which saw around $1.3 million of bitcoin invested.

In the case Gordon v. Dailey, U.S. District Judge Joseph Rodriguez ruled, yesterday, that the court had the authority to hear the case. This means that the court can circumvent whether federal jurisdiction exists under federal securities laws, reports the New Jersey Law Journal. The counsel for the plaintiffs is alleged to have said that the amount of bitcoin invested by the ten plaintiffs amounted to over $1.3 million, exceeding the $75,000 threshold for federal jurisdiction.

Last June, the case went into a state of limbo after investors were ordered to demonstrate that their lawsuit against Zachary Dailey and his company Lab Rat Data Processing, was subject to the court’s jurisdiction while the defendants moved to dismiss the case, reported the New Jersey Law Journal.

The report states that Dailey made misrepresentations, claiming that the bonds he was selling represented an ownership interest in the company, giving the buyers the right to a cut of its revenues. At the time, Judge Rodriguez said it was unclear if the court had subject matter authority as the investors failed to provide information regarding the amount of damages.

Not only that, but Judge Rodriguez states that the plaintiffs failed to show that the U.S. Securities and Exchange Commission (SEC) had the jurisdiction to regulate the investments provided by Dailey. Under the securities law, a bond is considered a debt, but Dailey was selling mining contracts, which are considered private with a predicted return taken from the company’s investments.


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At the time of the June 2016 ruling, Judge Rodriguez said:

It is not at all clear whether the ‘bonds’ defendants allegedly sold were – as a legal matter – bonds, stocks or something else entirely.

Yet, while the plaintiffs said that the bitcoin investments in question were not bonds in the conventional sense, they were still investment contracts and, subsequently, subject to federal securities laws.

According to the plaintiffs, Dailey is reported to have discovered them via an online notice that Lab Rat would function as a miner of the digital currency, bitcoin, which would then pay dividends to bondholders.

The plaintiffs’ lawyer, Christopher Hawkins, said:

Jurisdiction is jurisdiction. He doesn’t need to go to the next step.

The next step for Hawkins to take is to proceed with his claims, which will now include violations of securities law.

Featured image from Shutterstock.

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Posted by Rebecca Campbell