After Bitfinex, the CFTC issued its Proposed Interpretation on "Retail Commodity Transactions Involving Virtual Currency." Proposed Interpretation, 82 Fed. Reg. 60335 (CFTC Dec. 20, 2017). Although the comment period closed March 20, 2018, the CFTC has taken no further action on the Proposed Interpretation to date.
The CFTC will assert Commodities Exchange Act regulatory jurisdiction over any "entity or platform [that] offers margin trading or otherwise facilitates the use of margin, leverage or financing arrangements for their retail market participants…." Id. at 60337 ...
In a series of 2015 decisions, the CFTC determined that virtual currency is a commodity subject to its jurisdiction.
In a 2016 settled enforcement action, the CFTC took the position that an unregistered platform administering and providing margin trading contracts in crypto-currencies to non-eligible ("retail") users violated the provisions of the Commodities Exchange Act, In the Matter of BFXNA, Inc. d/b/a Bitfinex, No. 16-19 (CFTC Jun 2, 2016), where:
- Bitfinex controlled the keys to the customer and escrow wallets involved in the margin lending.
- Bitfinex used book-entry ...
The 2011 Dodd-Frank Act amended the CFTC's jurisdiction to authorize regulation of
"retail commodity transactions offered 'on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis.' Dodd-Frank [Publ. L. No. 111-203] § 742, 124 Stat. [1376] at 1732-33 (codified at 7 U.S.C. § 2(c)(2)(D)[(i)])."
CFTC v. Hunter Wise Commodities, LLC, 749 F. 3d 967, 970 (11th Cir. 2014). The Hunter Wise Court held those amendments in fact expanded the CFTC's jurisdiction. But that expanded ...
Prior to Dodd-Frank, the CFTC and Courts recognized a distinction between traded futures contracts subject to CFTC jurisdiction and individualized non-exchange-traded contracts for the present sale of a cash commodity for deferred or future delivery (a "forward contract" or just "forward"). Forwards are exempt from CFTC jurisdiction. Unlike futures, cash forwards contemplates actual physical delivery, contain individualized terms, involve a commodity of intrinsic value (itself, not just the contract), and are not transferable or traded contracts.
Generally, a cash ...
On September 11, FINRA announced its filing of an enforcement action accusing a Massachusetts broker of fraud and registration violations arising from his sale of an unregistered cryptocurrency, "HempCoin." It is FINRA's first cryptocurrency enforcement action.
FINRA alleges Timothy Ayre of fraudulently attempting to bolster his worthless public shell company, Rocky Mountain Ayre, Inc. (RMTN in the OTC pink sheets). Ayre alleged repackaged HempCoin as a security backed by RMTN common stock, marketing it as "the world's first currency to represent equity ownership" in a ...
This is Part 3 of a seven-part series of posts looking at some broad legal issues affecting crypto-currencies.
A. Regulatory Catch-Up.
As is often true of emerging technologies, the crypto-rush of the last few years has left regulators of all types struggling to catch up. The resulting confusion increases entrepreneurial and transactional risks, and also increases fraud risks (about the only thing all regulators agree about).
Various United States federal regulators have expressed interest in crypto-currencies, and claimed some jurisdiction over,
- The Securities and Exchange ...
On September 11, the SEC announced a pair of settled cryptocurrency enforcement actions. The first was against an unregistered digital-asset hedge fund. The second shut down an "ICO Superstore" as an unregistered broker-dealer.
Crypto Asset Management LP ("CAM") ran an unregistered investment company while falsely marketing it as the "first regulated crypto asset fund in the United States." The unregistered offering raised $3.6 million over four months in late 2017, violating the '33 Act. Because the offering proceeds were used to buy digital assets that constituted over 40% of ...
Last October, the Uniform Law Commission released the Uniform Regulation of Virtual-Currency Business Act (VCBA), which sets forth extensive requirements applicable to persons or entities who engage in virtual currency business activity with residents of a state. An overview of the VCBA and its key provisions can be found here.
Since its release, three states-Connecticut, Hawaii, and Nebraska-have introduced bills adopting the VCBA. To date, no state has enacted the proposed legislation.
Connecticut
Representative Patricia Dillon introduced HB No. 5496, which was ...
This is Part 2 of a seven-part series of posts looking at some broad legal issues affecting crypto-currencies.
State and federal regulators, especially the SEC, have moved aggressively to halt unregistered initial coin offerings ("ICOs") as unregistered securities sales, where the tokens involved have the attributes of equity in return for money, goods, or services. The SEC first asserted its jurisdiction over token ICOs in its § 21(a) Report on The DAO. Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Rel. No. 34-81207 (SEC, July ...
This is Part 1 of a seven-part series of posts looking at some broad legal issues affecting crypto-currencies.
DLT vs Territorial Law.
Fiat currencies have declared value stemming from governmental regulation. And "governments" typically are territorial jurisdictions, exercising the fundamentally territorial concepts of law and regulation.
Cyber-currencies function on the blockchain, a distributed ledger technology ("DLT"). Because DLT is - and fundamentally must be - decentralized and distributed, it defies conventional notions of, and structures for, the ...