Amid a series of hearings on cryptocurrency scheduled this week in the House of Representatives and Senate, a discussion draft of a bill entitled the “Keep Big Tech Out of Finance Act” has begun to circulate online. The bill appears intended to prohibit several large, well-known technology firms from engaging in various cryptocurrency-related businesses in the United States.
On July 8, 2019, the SEC’s Division of Trading and Markets and FINRA’s Office of General Counsel (collectively, the Staffs) issued a Joint Statement on Broker-Dealer Custody of Digital Asset Securities. For purposes of the Joint Statement, “digital asset” refers to any asset that is issued and transferred using distributed ledger or blockchain technology, and a “digital asset security” is any digital asset that is also a security for purposes of the federal securities laws. The Joint Statement discusses several provisions of the federal securities laws applicable to registered broker-dealers that may be implicated when such entities custody digital asset securities.
On June 18, 2019, the Commodity Futures Trading Commission (CFTC) announced the commencement of a civil enforcement action (the Complaint) against two United Kingdom-based defendants, a purported Bitcoin trading company and its principal (collectively, the Defendants). The CFTC alleges that the Defendants perpetrated a wide-ranging fraud involving at least $147 million in Bitcoin from more than 1,000 customers.
Nevada is the latest state to adopt statutory amendments accommodating blockchain. In the first two weeks of June, Nevada enacted the following new laws:
- SB161 – The act creates a regulatory sandbox in the Department of Business and Industry for any use of a new or emerging technology, or any novel use of an existing technology, to address a problem, provide a benefit or otherwise offer or provide a financial product or service that is determined by the Director of the Department not to be widely available in Nevada. The act is effective June 13, 2019 for the purpose of adopting any regulations and performing any other preparatory administrative tasks necessary to carry out the provisions of the act, and on January 1, 2020, for all other purposes.
As reported in the Hunton Andrews Kurth LLP Privacy & Information Security Law Blog posted on June 6, 2019, Hunton’s Centre for Information Policy Leadership (“CIPL”) on May 31 issued a white paper on GDPR One Year In: Practitioners Take Stock of the Benefits and Challenges (the “White Paper”). In addition, CIPL submitted the White Paper along with a separate response to the European Commission’s questionnaire to prepare for the June 2019 stocktaking exercise on the application of the EU General Data Protection Regulation (“GDPR”).
In May 2019 the Australian Securities and Investments Commission (ASIC) issued Information Sheet 225, “Initial Coin Offerings and Crypto-Assets” (IS 225). IS 225 provides helpful guidance for Australian entrepreneurs considering whether to raise funds through an initial coin offering (ICO) and for businesses that are involved with crypto-assets such as cryptocurrency, tokens or stable coins in Australia.
On May 24, 2019, New Zealand-based online asset exchange, Cryptopia Limited, filed a petition under Chapter 15 of the United States Bankruptcy Code seeking recognition of its New Zealand liquidation proceeding in the United States. On the same day, the United States Bankruptcy Court for the Southern District of New York granted provisional relief to Cryptopia, including extending the benefits of the automatic stay to prevent creditors or other parties in interest from taking actions to interfere with Cryptopia’s assets. The court will conduct a hearing on Cryptopia’s petition to recognize its New Zealand liquidation proceeding on June 25, 2019 in New York.
On May 9, 2019, FinCEN, the U.S. federal agency charged with combating money laundering, issued two new interpretive documents of interest to the crypto community. The first is interpretive guidance titled “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies” (the “Guidance”). The second document is an “Advisory on Illicit Activity Involving Convertible Virtual Currency” (the “Advisory”).
On May 2, 2019 US Department of Treasury’s Office of Foreign Assets Control (OFAC) published “A Framework for OFAC Compliance Commitments” (the Framework), which provides a specific outline of what OFAC considers to be essential elements of an effective sanctions compliance program. Crypto businesses should consider the applicability of the Framework to their products.
Read our full alert here.
As this short video explains, the “initial exchange offering,” or IEO, is the latest innovation in the offer and sale of cryptocurrencies. By partnering with a crypto exchange to aid in marketing and listing efforts, issuers engaging in an IEO hope to obtain better visibility and liquidity for their products. But like the ICOs they seek to replace, IEOs raise a host of potential issues under the US federal securities laws.