Billions Vanish: Could 2025 Be Crypto’s Worst Year Yet?
The cryptocurrency sector experienced severe security failures in the first half of 2025, resulting in losses of $2.7 billion. While 2022 remains the worst year on record, the value of stolen funds (year-to-date) at the end of June 2025 was 17.27% higher than at the same point in 2022.
Current projections suggest that total losses in 2025 from services alone could surpass $4.3 billion. Attacks on personal wallets are also growing and account for 23.35% of all stolen funds YTD in 2025.
Image Source: Chainalysis. (July 17, 2025). 2025 Crypto Crime Mid-Year Update
Of the $2.7 billion stolen in the first half of the year, $1.5 billion was lost due to the DPRK’s hack of ByBit. The attack is believed to have involved advanced social engineering methods including infiltration via compromised IT personnel. In fact, UN reports suggest that Western tech firms have hired thousands of North Korean staff unknowingly.
Implications for brokers and their clients:
- Encourage end clients to strengthen personal wallet protections as individuals start to face greater risks.
- Review exclusions in existing cyber and crime policies to confirm they reflect today’s scale of potential crypto losses.
- Ensure social engineering risk is covered by cyber and crime insurance policies.
Source: Chainalysis. (July 17, 2025). 2025 Crypto Crime Mid-Year Update.
AI-Washing Backlash: Investors Take Companies to Court
Crypto isn’t the only sector where risks are reaching new heights. In the first half of 2025, the number of AI-related lawsuits filed in the US already exceeds the total for 2024. 12 class-action lawsuits were filed, many involving allegations of ‘AI-washing’ where companies overstate or misrepresent the capabilities of their technology to attract investors.
Image Source: Cornerstone Research (July, 2025), 2025 Midyear Assessment: Securities Class Action Filings
Implications for brokers and their clients:
- Monitor regulatory guidance closely, as international watchdogs are signaling stricter oversight of AI.
- Implement proactive risk assessments of AI capabilities before public statements or fundraising.
- Ensure M&As and other significant transactions are protected by transaction liability in case of accusations of misrepresentation or overstatement.
Source: Mitrade. (July 31, 2025). Crypto In The Courtroom — 2025 Class Actions Could Hit All-Time High.
Why 444 Cannabis Products were Recalled in Just 3 Months
The Department of Cannabis Control recently released an update on regulatory actions in California’s cannabis sector. In Q2 2025 alone, the agency issued 34 product recalls, impacting 444 items deemed unsafe or noncompliant. Of these, 183 products had not undergone sufficient testing, while 181 were recalled due to labelling that could appeal to children. In addition, regulators carried out 25 license revocations, two suspensions, and 35 citations resulting in fines.
Implications for brokers and their clients:
- Set up Google Alerts for regulation changes as this environment can change daily.
- Review coverage for regulatory penalties and the defense costs that can follow enforcement actions.
- Product liability insurance must cover risks tied to inadequate testing, mislabeling, and packaging recalls, which can result in substantial direct costs.
Source: California Department of Cannabis Control. (August 11, 2025). The Department of Cannabis Control’s Recent Efforts Continue to Prioritize Consumer and Public Safety and Support the Legal Cannabis Market.
Meta’s AI Nightmare: Disturbing Outputs Spark Global Backlash
Meta’s AI guidelines have come under scrutiny after an investigation revealed disturbing outputs, including “sensual” conversations with children and racist content. While the company denied these examples reflect policy or practice, the incident underscores the difficulty of controlling generative AI and the reputational risks it creates.
With venture capital pouring more than $120 billion into AI in the first half of 2025 and valuations surging, developers are racing ahead despite the inherent instability and reputational risks tied to the technology.
Image Source: Reuters Breakingviews (Jonathan Guilford). (August 14, 2025). Facebook Teaches Early Lesson in Unbounded AI Risk.
Implications for brokers and their clients:
- Monitor investor litigation trends, as overstated safety claims in AI systems could mirror the ‘AI-washing’ lawsuits already emerging.
- Review media liability and tech E&O coverage, as AI-driven harms often trigger both regulatory and civil claims.
- Ensure strong oversight of third-party AI systems.
Source: Reuters Breakingviews (Jonathan Guilford). (August 14, 2025). Facebook Teaches Early Lesson in Unbounded AI Risk.
Tokenized Stocks: Future of Trading or Legal Time Bomb?
The crypto industry has been heavily promoting tokenized stocks, where ownership of stock is transferred via blockchain. But legal professionals warn of significant risk that comes with this practice. Professor Hilary Allen of the American University Washington College of Law was quoted saying “There are a lot of protections that are given up by this move.”
To establish a tokenized stock, the asset must first be held by a custodian. A financial institution then creates the corresponding digitized token. Finally, the token is programmed with a smart contract that provides the same rights as stock ownership, like voting rights and dividend distributions. Once tokenized, stocks can be exchanged among traders on crypto and other DeFi platforms.
The purported benefits of this approach include the potential for lower transaction costs, increased access through fractional shares, and the option for 24/7 trading. But what are the risks?
First, legal protections are uncertain. There may be disputes over who the issuer of a tokenized stock is; is it the stock’s original issuer or the company that tokenized it? And what are the implications if an asset is hacked? There’s also uncertainty around how smart contracts will operate in the unexpected environments involved. Transactions may also be irrevocable.
Implications for brokers and their clients:
- Those testing out tokenized stocks should be aware of their many risks amid an uncertain legal framework.
- Ensure cyber and crime insurance addresses risks from smart contract failures, hacks, or theft of tokenized assets.
- Monitor changing SEC and international regulatory guidance, as rulings on tokenized securities may impact exposure.
Source: Bankrate (August 14, 2025). Tokenized stock trading: The huge risks in moving stocks to blockchain.
Crisis at N26: Investors Demand Founders Step Down
A dispute between founders and investors at N26, Germany’s biggest fintech, may be coming to a close. The two founders, Valentin Stalf and Max Tayenthal, may exit by the end of the year following long-term scrutiny from Germany’s financial watchdog, BaFin. N26 had faced sanctions due to alleged flaws in its risk management, including flawed AML controls.
A group of investors involved in the dispute had been guaranteed a 25% annualized rate of return in a fundraising round in 2021. But BaFin later imposed caps on the company’s growth, restricting them to 50,000 new members per month. The cap was lifted last year, but recent warnings of new sanctions have spurred the dispute onward.
Implications for brokers and their clients:
- Keep a close watch over regulatory changes as compliance needs often evolve along with criminal methods.
- Reassess transaction liability cover for investors engaging in deals with fintechs under regulatory scrutiny.
- Fintech firms can prepare for regulatory shocks with insurance that supports crisis management, reputational harm, and business interruption scenarios.
Source: Financial Times. (August 14, 2025). The bust-up at Germany’s biggest fintech.
