On July 8, 2019, the SEC’s Division of Trading and Markets and FINRA’s Office of General Counsel issued a Joint Statement on Broker-Dealer Custody of Digital Asset Securities. 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.
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In a case being closely watched by the crypto community, a California federal judge reversed his earlier decision and, on reconsideration, issued a preliminary injunction against ICO issuer Blockvest LLC. Although the SEC has a high success rate in litigated cases, its action against Blockvest was notable because the judge initially declined to grant the SEC’s request for a preliminary injunction, then ruling that “at this stage, without full discovery and disputed issues of material facts, the Court cannot make a determination whether the BLV token offered to the 32 test investors was a ‘security.’” After reviewing new evidence, the judge subsequently reversed his position and found that Blockvest had indeed issued a security.
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At a recent securities regulation conference, Bill Hinman, Director of the SEC’s Division of Corporation Finance, indicated that the agency intends to release “plain English” guidance around the issue of whether an ICO is a security. The idea behind the plain English guidance appears to be to consolidate the SEC staff’s views into a single “how to” document for use by the lay person.
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State and provincial securities regulators across the US and Canada have been actively policing the marketplace for ICOs and security token offerings, supplementing efforts at the federal level undertaken by the SEC. Colorado and North Dakota are among the latest states to announce enforcement actions in the crypto space.
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On November 8, 2018, the SEC announced settled charges against an unlicensed digital token exchange. It represents the SEC’s first enforcement action based on findings that such a platform operated as an unregistered national securities exchange. This action follows first-of-their kind enforcement actions that the SEC brought in September against an unregistered broker-dealer and an unregistered investment company that each transacted in digital securities.
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A recent bipartisan letter from Members of Congress seeks clarification from SEC Chairman Jay Clayton as to the status of digital tokens and cryptocurrencies under the federal securities laws. The signatories expressed their view that not all digital tokens should be deemed securities, and voiced their concern that the SEC should not use its enforcement mechanism alone to craft policy on this issue.
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On September 27, 2018, the Securities Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) charged an international securities dealer with illegally offering and selling to U.S. investors security-based swaps funded with bitcoins and related violations of the Commodities Exchange Act. The broker, 1pool Ltd., a.k.a. 1Broker, and its CEO, Patrick Brunner, were both named in the complaint filed by the SEC with the U.S. District Court for the District of Columbia. 
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