Investors of token-issuing firms are being advised against taking a board seat at the startup, according to a report by The Information. Their lawyers have advised the executives to stay away from such roles as regulatory scrutiny intensifies.
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The TerraUSD stablecoin collapse in May, and the Celsius lending platform’s withdrawals freeze a few months ago have put the crypto sector under regulators’ scanner. Authorities are also tracking institutional investors who have backed some of the failed or controversial projects.
Venture capital firm Andreessen Horowitz, which has several multi-billion dollar funds dedicated to crypto investments, was not looking to take up a board position in some of its high-profile crypto investments, the report said. The reason: To reduce the firm’s risk of legal liability.
Token-issuing firms also face legal challenges and risks, including class action suits. This could potentially lead investors and board members to a legal quagmire.
To limit liability, lawyers are advising investors to simply serve as observers rather than active board members, the report said.
Regulators worldwide are watchful of the effects of crypto on legacy financial systems. In September, the Biden administration released a framework for potential crypto regulation in the U.S.
A report by the blockchain analytics firm Elliptic stated that at least $4 billion in illegal crypto assets had been laundered by cyber criminals or dubious traders.