Earlier this week, Coinbase and its sweepstakes administrator agreed to the terms of a class action settlement in the matter of Suski v. Coinbase, Inc. After nearly four years of litigation, including a trip to the United States Supreme Court, Plaintiffs accepted $2.25 million dollars to settle their crypto sweepstakes lawsuit.
It is important for sweepstakes operators to ensure that their promotions comply with applicable state and federal regulations. As evidenced by Suski, misleading sweepstakes promotions can result in the expenditure of a great deal of time and money in responding to class action lawsuits and/or regulatory action.
The “Dogecoin” Crypto Sweepstakes Lawsuit
In June 2021, Coinbase made the “Dogecoin” cryptocurrency available on its platform. To increase trading volume, it hired a third party to administer a crypto sweepstakes with a top prize of $300,000. As alleged, various prompts on Coinbase’s website informed users that, in order to participate, they had to buy or sell $100 worth of “Dogecoin” on the Coinbase platform. Plaintiffs entered the sweepstakes promotion and traded the cryptocurrency, as instructed, for a shot at the top prize.
Only after entering the promotion, Plaintiffs claimed, did they learn that there was an alternative, free means of entry (“AMOE”) available to enter the sweepstakes. A separate “rules and details” page of Coinbase’s website made clear that consumers could also enter the sweepstakes by U.S. Mail without trading cryptocurrency. Plaintiffs subsequently filed a class action lawsuit in the Northern District of California, asserting that, had Coinbase properly disclosed this AMOE, they would not have paid money to enter the cryptocurrency sweepstakes.
Tips for Running a Crypto Sweepstakes
The Suski proceedings demonstrate just how time consuming and costly prolonged sweepstakes-related litigation can be. Before the merits of the lawsuit could even be determined, Coinbase filed a Motion to Compel Arbitration. The Motion was denied; and three years of legal proceedings followed to determine whether the court’s denial was proper.
Businesses that are interested in running crypto sweepstakes promotions should employ best practices to reduce the possibility of finding themselves defending an action in a court of law. Among other measures, sweepstakes operators must exercise caution when drafting sweepstakes contest rules, as well as associated disclosure and disclaimer language. For example, sweepstakes contest rules and associated terms should always:
- Make clear that no purchase/payment is necessary to enter or win.
- Include disclosures that make clear that a purchase/payment will not increase the odds of winning.
- Make clear that entrants who utilize the sweepstakes AMOE have the same odds of winning as those who enter by making a purchase.
Sweepstakes regulations are quite complicated and differ from state to state. As such, it is important that sweepstakes operators and their marketing teams secure the services of experienced sweepstakes attorneys prior to promotion launch.
The attorneys at Klein Moynihan Turco have decades of experience in assisting businesses with assorted sweepstakes promotions. If you require assistance in this area, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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