In a July 30 speech in Singapore, SEC Commissioner Hester Peirce compared renegade red pandas’ penchant for life “outside the fence” to the Fin-Tech innovation currently frustrating regulators’ efforts to keep up.
Eschewing calls for international regulation, she also compared the efforts of multiple national regulators to the oft-cited role of U.S. states as “laboratories of democracy.” Cataloging some to date, she cited:
- Singapore’s regulatory “clarity”
- Thailand’s 2018 regulatory framework
- Japan digital asset offering legislation and 2017 ...
Last week, the SEC’s Corporate Finance division issued its second no-action letter supporting a digital token issue. On July 25, 2019, the Staff agreed it would not recommend enforcement action over the issuance of Quarters tokens for online gaming.
The issuer, Pocketful of Quarters, Inc. (“POQ”), states its use case as addressing “in-game currency fragmentation” by creating a “universal gaming taken” to solve “the inability to use gaming credits, coins or other units of value purchased in, or earned playing, one online video game in other online games.”
The ...
Late last week, the SEC issued a no-action letter widely hailed as its first on a blockchain-based digital token for private jet services. In its TurnKey Jet letter, the Commission Staff indicated it would not recommend enforcement action over the operation of a private, permissioned, centralized blockchain network and smart-contract infrastructure for clearing and payment using a utility-token effectively functioning as a pre-paid jet card (or streetcar token).
See TurnKey Jet, Inc. (Apr. 3, 2019), here.
And the request, here.
CoinDesk reports that the no-action process took ...
This week, the SEC's Division of Investment Management issued a letter seeking industry and public input on custody issues arising from digital assets.
The "Custody Rule," Rule 206(4)-2 under the Advisers Act of 1940, provides it is a fraudulent act or practice to have custody of client assets, unless an adviser complies with Custody-Rule requirements, including among others, by a qualified custodian subject to annual independent audits.
The Division’s recent Guidance Update on custody issues focused on inadvertent custody (e.g. where boilerplate in the adviser’s ...
The Securities and Exchange Commission issued a Sources Sought Notice on January 31, 2019, seeking a private vendor "to support the goal of acquiring data for the most widely used blockchain ledgers."[1]
In the notice, the SEC did not specify or name the ledgers it wanted to acquire data from; however, the requirement that they gather data from the "most widely used" ledgers suggests that the SEC would want the vendor to be able to gather data from cryptocurrencies such as bitcoin and ethereum.
This step towards data gathering, likely in the realm of cryptocurrencies, is an interesting ...
According to an initial registration statement published on January 10, the cryptocurrency index fund provider Bitwise Asset Management has applied with the U.S. Securities and Exchange Commission ("SEC") to form a new bitcoin-backed exchange-traded fund ("ETF"). The Bitwise Bitcoin ETF Trust seeks approval to issue and redeem shares that trade on the NYSE Arca, Inc. stock exchange in blocks of 25,000 shares. If approved, the Bitwise Bitcoin ETF Trust will be the first of its kind.
Bitwise Asset Management's SEC Form S-1 states that the Bitwise Bitcoin ETF Trust will track the ...
On November 29, the Securities and Exchange Commission (SEC) announced in a press release that it has settled charges against two celebrities for promoting investments in ICOs without disclosing payments received for the promotion. The SEC has previously indicated in a November 2017 statement to the public that investors should be wary of celebrity-backed ICOs, but these are the SEC's first cases against celebrities for promoting ICOs for compensation without appropriate disclosures.
Music producer Khaled Khaled (known as DJ Khaled) and professional boxer Floyd Mayweather ...
In a November 16, 2018 Statement on Digital Asset Securities Issuance and Trading, the Securities and Exchange Commission (SEC) announced its current position on regulation of blockchain and other distributed ledger technologies. In its Statement, the SEC emphasized that "market participants must still adhere to our well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain."
The Statement relied on ...
On November 8, the SEC filed its first settled enforcement action against a cryptocurrency trading platform for operating as an unregistered exchange trading securities, in violation of the Securities Exchange Act of 1934.
"EtherDelta" was a platform offering matched-book secondary market trading of ERC-20 tokens, many of which had issued in unregistered initial-coin-offerings ("ICOs") having attributes of "securities" under the Howey investment-contract analysis. The Howey test was applied by the SEC in its July 2017 Section 21A Report, The DAO, to conclude that digital ...
On October 3, 2018, the Securities and Exchange Commission sued Blockvest LLC and its founder Reginald Buddy Ringgold, III for falsely claiming that its initial coin offering had been approved by the SEC. The complaint, filed in the United States District Court for the Southern District of California, Case No. 18-CV-2287-GPC, sought a return of improperly obtained funds as well as a temporary restraining order to "halt the fraudulent offer and sale of unregistered securities" by Blockvest and to freeze the assets of both Blockvest and Ringgold.
The SEC's complaint alleges that ...
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 ...
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 ...
On July 26, 2018, the Securities and Exchange Commission issued a 92-page release disapproving of Bats BZX Exchange, Inc.'s ("BZX") proposed rule change which sought to list and trade shares of the Winklevoss Bitcoin Trust.[1] See generally Bats BZX Exch., Inc. Winklevoss Bitcoin Trust Order, Exchange Act Release No. 34-83723, 2018 WL 3596769 (July 26, 2018) [hereinafter SEC Release].[2] The Release explains that the Commission disapproved of the proposal because BZX failed to meet its obligations under Exchange Act Section 6(b)(5).
Section 6(b) of the Exchange Act sets forth ...