What the lawsuit against DeFi Technologies means for crypto companies

The recent federal class action lawsuit against DeFi Technologies Inc. has raised alarms in the crypto industry, according to Jason Bishara, a governance expert at NSI Insurance Group.

Investors accuse the company of misleading them about the profitability of its proprietary DeFi Alpha arbitrage trading strategy.

With the market reacting quickly – causing share prices to plummet – the question now is whether this legal challenge is just the tip of the iceberg. Bishara considers the potential for more lawsuits against digital asset companies over undisclosed risks.

Earlier this month, DeFi Technologies Inc. hit by a federal class action lawsuit filed by investors who allege the company misled the market about the viability of its proprietary DeFi Alpha arbitrage trading strategy.

The lawsuit, which covers the period from May 12, 2025 to November 14, 2025, alleges that the company misrepresented its financial health, particularly the sustainability of its revenue model, while executives including CEO Olivier Roussy Newton and CFO Paul Bozoki touted the strategy as a reliable source of profits. The sharp corrective revelations that followed led to a significant decline in the company’s stock price, which hurt investors.

With increasing scrutiny of the digital asset space, this legal action could be just the beginning. As concerns about industry transparency grow, companies with large portfolios of digital assets could soon face more lawsuits over undisclosed risks and unclear financial strategies.

We spoke to Bishara to get his take on the situation. He advises companies with significant government holdings of digital assets and sees an increasing focus on strategy claims, government bond disclosures and the potential for legal action.

Do you view the lawsuits against DeFi Technologies as a one-off, or could they be a signal of a broader wave of lawsuits targeting companies with exposure to crypto or DeFi?

Gospel: I don’t see the lawsuits against DeFi Technologies as a one-time event – ​​I see them as a trigger. This case has all the ingredients that invite copycat lawsuits: a volatile underlying asset class, a business model that can be difficult to explain (arbitrage/return), and a large gap between what investors thought they were buying and what showed up in the numbers. The DeFi lawsuit is already built around allegedly misleading statements and omissions related to arbitrage strategy and competitive dynamics, and follows a reported revenue decline and lowered forecasts that accompanied a steep decline in stock prices.

What makes companies vulnerable to these types of claims: lack of transparency, exaggerated growth or unclear DeFi strategies?

Gospel: What makes companies vulnerable is the same pattern I see across the space: not the crypto itself – the communication around it. If you overestimated performance and risk, or left your digital asset strategy vague enough that investors filled in the blanks for you, plaintiffs now see a road map. A lack of clarity is increasingly seen as a misrepresentation.

From a governance perspective, what best practices should crypto or DeFi treasury companies implement to mitigate legal risks?

Gospel: Drivers need to tighten the basics immediately. Document the strategy. Disclose how digital assets will be used. Make sure management is aligned with the messaging. These are simple administrative steps, but they make the difference between being prepared and being caught flat-footed in a lawsuit.

Are there common errors in public statements or communications with investors about crypto that could increase exposure to lawsuits?

Gospel: The most common mistakes I see include: treating “crypto exposure” as a marketing line rather than an operational strategy; using broad language about “return,” “arbitrage,” or “low-risk returns” without clear explanations in English; and failing to keep the market informed when something material changes – a major trade, a change in strategy or a pullback that changes the risk profile. If you have cryptocurrency on your balance sheet, you’re in the disclosure business whether you like it or not.

How should boards balance the need for transparency with protecting competitive strategic information when discussing digital assets?

Gospel: I think the right approach is ‘transparency at the strategy level and discretion at the trading level’. Investors don’t need your playbook, but they do need to understand the why, the how, and the risk. That means you need to clearly describe: what assets you hold, the purpose (treasury reserve versus operating strategy), how you generate returns – if applicable – what might force a sale, and how governance works – oversight, approvals, controls. You can protect competitive data – timing, counterparties, exact execution mechanisms – while still giving shareholders a true picture of exposure and decision-making.

Could these lawsuits set a precedent that will impact disclosure requirements or regulators’ expectations for other companies that own digital assets?

Gospel: Yes, this could set expectations for other companies, even without a formal “new rule.” Courts rewarding plaintiffs here will essentially raise the bar on forecast discipline, risk communications, and board oversight for digital asset strategies – because everyone will be looking at what language has gotten companies into trouble and what disclosures have held up. Investors are watching to see what courts do in the areas of forecasting, communications and governance – and that’s exactly why I expect more lawsuits.

And could we see an increase in the number of companies purchasing specialized insurance or hedges to protect against crypto-related lawsuits?

GospelOn the financial side, I expect more companies will take protection seriously – starting with assessing D&O and considering whether existing messaging meaningfully takes into account crypto-related disclosure risks. I also wouldn’t be surprised to see more structured risk tools emerge – insurance where available, hedging policies, liquidity buffers – but the bigger “hedge” is getting disclosure and governance right before the first complaint is filed.

What proactive steps should companies that have not disclosed their digital asset strategies take to avoid lawsuits?

Gospel: If a company has not made its strategy public, it should immediately consider how it will communicate that to shareholders – because a lack of clarity is now treated as misrepresentation. The proactive steps are simple:

• Create a playbook of material events: If you make a large transaction, explain what you’re doing with the money and how it changes your risk profile.
• Put the strategy on paper (at board level), including objectives, limits, liquidity needs and triggers for buying/selling.
• Align internal messaging so that earnings calls, decks, press releases, and investor Q&As all describe the same reality.
• Disclose in plain language what the model is and is not, especially if you rely on arbitrage, borrowing, staking or any return mechanism.

And how can companies quantify the risks of crypto or DeFi strategies and communicate them to investors without inviting legal trouble?

Gospel: Don’t make it sound ‘safe’, don’t rely on hype or imply predictability where there isn’t any. Communicate scope, scenarios and decision rules – no promises. Explain what can go wrong – volatility, liquidity needs, counterparty risk, regulatory shifts – and what governance is in place to manage those risks. The goal is not to scare investors; It is to prevent them from saying later: “I would never have bought it if I had understood the downside.”

Do you expect this trend to spur the creation of industry standards or guidelines for digital asset disclosure?

Gospel: Yes – I think this trend is pushing the market towards de facto standards, even before regulators formalize anything. Once you have a few high-profile cases, companies start to copy the disclosure patterns that seem defensible, auditors and underwriters start asking sharper questions, and investors start to expect consistent line items and narrative explanations at “DAT-style” publicly traded companies.

In other words, the pressure of litigation can standardize behavior: clearer descriptions of strategy, clearer explanations of how returns are generated (or not), clearer governance, and clearer discussion of what drives sales or strategy changes. If this lawsuit gains momentum, other digital asset companies will be next – and you’ll end up with an informal rulebook pretty quickly.