Virtual currency platform operators may be subject to EFTA and Regulation E

In Rider et al. v. Uphold HQ, Inc. (2023 WL 2163208, USDC, SDNY, February 22, 2023), the plaintiffs brought a class action asserting claims, among others, for violation of the Electronic Fund Transfer Act (EFTA) and its implementing regulations (Regulation E), against the operator of a cryptocurrency exchange as the result of improper access to the plaintiffs' account by unauthorized actors.

In response to the defendant's motion to dismiss, the court held that cryptocurrencies constituted "funds" within the meaning of the EFTA, enabling plaintiffs to proceed with their claim for violation of the EFTA and claim for negligence per se based on violation of the EFTA. The EFTA defines, in relevant part, an "electronic funds transfer" as "any transfer of funds" 15 USC § 1693a(7); however, the EFTA fails to define the term "funds."

The court held, "Under its ordinary meaning, the term 'cryptocurrency' means a digital form of liquid, monetary assets that constitute 'funds' under the EFTA" based on the dictionary definitions of the terms "funds" and "cryptocurrency." The court also noted another case finding that "funds" encompasses "any currency that can be used to pay for things" for purposes of a money laundering statute.

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