The Council of Institutional Investors (CII) and Templum, Inc. (Templum) each recently submitted comments to the SEC to call for the agency to embrace blockchain technology in a variety of contexts regarding the registration and transfer of securities. The dominant system for clearance and settlement of securities in the United States has its roots in the “paperwork crisis” of the early 1970s, and the resulting regulatory regime based on immobilization of securities is largely inconsistent with a blockchain-based system of traceable shares.
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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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A recent settled SEC enforcement action against an ICO issuer and its promoter calls into question the viability of the “airdrop” model of distributing digital tokens to investors. Whether such a distribution model runs afoul of the federal securities laws has been the subject of much debate in recent months, and the SEC’s case provides additional insight into their analysis of the issue.
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While ICO issuers have understandably been focused recently on the latest pronouncements from the SEC and other regulators, a second group of potential litigants has largely avoided notice. Seeing a potential bonanza, private plaintiffs law firms have become aggressive in soliciting disgruntled investors as clients and filing lawsuits against issuers of digital tokens.
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