On February 9, 2018, the Hong Kong Securities and Futures Commission (“SFC”) released a statement which, among other things, informs the marketplace that the SFC sent letters to seven Hong Kong cryptocurrency exchanges warning against listing instruments that qualify as “securities” under the Securities and Futures Ordinance (“SFO”) without a required license.[1] Additionally,
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Securities Class Action Lawsuits Continue to Test the “Utility” Token Sale Model
On January 30, 2018, dissatisfied crypto token purchasers filed a class action lawsuit against Paragon Coin, Inc. (“Paragon”) and founders Jessica VerSteeg and Egor Lavrov, alleging that the Paragon initial coin offering (“ICO”) violated the federal securities laws.[1] This lawsuit follows those filed by plaintiffs against Centra, Tezos, ATBCoin, BitConnect, and Xunlei in…
Beyond SegWit2X
Bitcoin’s Blocksize Debate: Behind the scenes of Bitcoin’s (BTC) success, a debate continues about whether to expand the leading cryptocurrency’s blocksize from 1MB to 2MB. On one side, the “Big Blockers” want to increase Bitcoin’s blocksize, allowing the cryptocurrency to realize its potential as a cash alternative and compete with traditional payment systems. On the…
SEC Scrutinizes Pumping of Blockchain-Related Securities
The U.S. Securities and Exchange Commission (“SEC”) is continuing to increase its scrutiny of companies that might be taking advantage of investor excitement for blockchain and cryptocurrency (ICO) deals to inflate their share prices and raise funds. On January 8, 2018, the SEC suspended trading in the securities of Hong Kong-based UBI Blockchain Internet, Ltd.…
CFTC Issues Proposed Interpretation on Retail Virtual Currency Transactions
By Kari Larsen & Michael Selig
“Virtual currencies,” such as bitcoin and ether, qualify as “commodities” under the Commodity Exchange Act (“CEA”).[1] The extent that such products are subject to regulation by the U.S. Commodity Futures Trading Commission (“CFTC”) depends upon whether the products are traded in the spot (or cash) market, on a forward basis, or as the…
New York Regulator’s Suit Challenging OCC Fintech Charter Dismissed as Premature
On Tuesday December 12, 2017, a federal judge dismissed without prejudice a suit filed by the New York Department of Financial Services (NYDFS) against the Office of the Comptroller of the Currency (OCC) challenging the OCC’s proposed new special-purpose fintech charter. Judge Naomi Reice Buchwald of the U.S. District Court for the Southern District…
ICOs Must Remain Aware of Regulatory Enforcers
Digital assets, popularly referred to as “cryptocurrencies”, “coins”, and “tokens”, continue to provoke regulatory attention and create discord amongst regulators. Recent actions by the U.S. Commodity Futures Trading Commission (“CFTC”) and the U.S. Securities and Exchange Commission (“SEC”) demonstrate that activities by the issuers of tokens may draw scrutiny from either or both agencies. As…
Security Implications for Blockchain Technology Reviewed by SEC
By Kari Larsen & Michael Selig
On October 12, 2017, the U.S. Securities and Exchange Committee (“SEC”) held an Investor Advisory Committee (“IAC”) meeting to consider, among other things, blockchain technology and the implications for securities markets.1 The meeting covered a broad range of topics relating to blockchain and distributed ledger technology (“DLT”), including initial coin offerings (“ICO”), post-trade processing, and…
ICOs Receive Guidance from Abu Dhabi FSRA
Earlier this month, the Financial Services Regulation Authority of the Abu Dhabi Global Market joined the ranks of various regulatory agencies from countries, including Australia, Canada, and the United States that have addressed ICOs, by issuing Supplementary Guidance on the regulation of ICOs and virtual currencies. The Guidance offers parameters for classifying, for legal and…
Regulatory Authorities Respond to Coin Offering Endorsements
Floyd Mayweather, a world famous boxing champion, recently used his Twitter and Instagram accounts to help a company raise more than $30 million in an initial coin offering (“ICO”).1 Other celebrities have similarly capitalized on their “influencer” status by promoting digital tokens to their Twitter and Instagram followers. Token issuers raised over $3 billion via…