On November 28, 2018, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), announced an action against two Iranian citizens, Ali Khorashadizadeh and Mohammad Ghorbaniyan, who facilitated the exchange of bitcoin ransom payments on behalf of Iranian malicious cyber actors. This client update provides an overview of the OFAC action and identifies certain key issues raised by OFAC’s addition of digital currency addresses as associated information for the listings of Khorashadizadeh and Ghorbaniyan on the OFAC Specially Designated Nationals and Blocked Persons List (SDN list).
2018 Recap: Tokens, Coins, Cryptocurrencies, and Other Digital Assets under the Federal Securities Laws
In this post we discuss where things stand regarding the treatment of tokens, coins, cryptocurrencies, and other digital assets under the federal securities laws. This post reviews significant enforcement actions and statements this year prior to the recent Coburn enforcement action. Read more here.
Upcoming Bitcoin exchange-traded funds (“ETF”) Decisions
On January 4, 2018, NYSE Arca filed a proposed rule change to list 9 Bitcoin ETFs. Subsequently, the time for the Security Exchange Commission (“SEC”) to approve or disapprove was pushed back in March, April, July, and September. On August 22, 2018, the SEC disapproved the listings and the rule change. The following day, the SEC notified NYSE that it would be reviewing the ETFs pursuant to Rule 431 and staying the August 22 order. The ETF applications came from ProShares, Direxion, and GraniteShares.
EtherDelta Founder Sanctioned for Operating an Unregistered Securities Exchange
By Michael S. Didiuk and Conor O’Hanlon on November 9, 2018 Posted in Compliance
In this post we discuss how on November 8, the SEC announced an enforcement action charging the founder of a digital “token” trading platform for operating as an unregistered national securities exchange. Read more here.
2017 Recap: Tokens, Coins, Cryptocurrencies, and Other Digital Assets under the Federal Securities Laws – Facts and Circumstances
By Michael S. Didiuk on November 12, 2018
This post focuses on the Securities and Exchange Commission’s (“SEC”) recent action against a digital trading platform illustrates the continued uncertainty surrounding the treatment of tokens, coins, cryptocurrencies, and other digital assets under the federal securities laws. Senior SEC officials have expressed concern that a significant amount of activity in this industry may not comply with federal securities laws and increasing SEC enforcement activity evinces these concerns. Read more here.
The Federal Reserve Maintains Skepticism of Cryptocurrency Bitcoin
On the eve of the 10-year anniversary of Bitcoin’s Whitepaper, Chairman of the Federal Reserve Janet Yellen stated that she does not recognize cryptocurrencies as legitimate currencies to be used anywhere in the global economy. The Chairman used bitcoin as an example and said that the cryptocurrency does not represent a stable source of value or an efficient means of processing payments. She added that cryptocurrencies lack the requisite characteristics of fiat currency, like intrinsic value. Investing.com 11.1.18
New York DFS Approves Bitlicense for Bitcoin ATM Operator
On November 1, the New York Department of Financial Services (DFS) said it has approved Coinsource Inc. for a virtual currency license to operate 40 Bitcoin kiosks in New York City and neighboring counties. The Bitcoin kiosks are similar to ATMs in that users can insert cash to buy Bitcoin with their phones. Customers can also sell bitcoin for cash by scanning their mobile wallet at the station. To date, DFS has granted 12 Bitlicenses to virtual currency companies but Coinsource offers the first licensed cryptocurrency ATM. Reuters 11.1.18
FATF Issues Virtual Currency Guidance
On October 19, the Financial Action Task Force (“FATF”) published the outcomes of its Plenary meeting. Included in the outcomes of the meeting were new recommendations related to the regulation of virtual currency (the “2018 Virtual Currency Recommendations”). In addition to the 2018 Virtual Currency Recommendations, FATF announced that it will be publishing rules for international cryptocurrency regulation in June 2019 to encourage countries to “take coordinated action to prevent the use of virtual assets for crime and terrorism.” In 2015, FATF had issued a set of recommendations (the “2015 Virtual Currency Recommendations”) for a risk-based approach to virtual currencies related to money laundering and terrorism financing risks. The upcoming guidance will clarify how to apply the 2015 Virtual Currency Recommendations. While the future guidance is in development, FATF recommends that all jurisdictions should “urgently take legal and practical steps to prevent the misuse of virtual assets,” to include applying risk-based Anti-Money Laundering/Combating the Financing of Terrorism (“AML/CFT”) regulations to virtual asset service providers and risk-based monitoring and supervision of these entities. Virtual asset service providers, according to the 2018 Virtual Currency Recommendations, include crypto-crypto and crypto-fiat exchanges, the transfer on behalf of a person of a virtual asset from one virtual asset address or account to another, the safekeeping or administration of virtual assets, and the participation in and provision of financial services related to the offer and sale of a virtual asset. FATF also noted that, for those jurisdictions that have already implemented the 2015 Virtual Currency Recommendations, the clarifications coming out of the Plenary meeting are “largely compatible” with what the jurisdiction likely already has in place.
On June 27, 2018, the Chinese Hangzhou Internet Court announced its decision on a case regarding the infringement of the right of communication through an information network. In a first for Chinese courts, the court accepted electronic data that was stored using blockchain technology as legal evidence. The court also clarified the examination standards for such electronic data.
Week of October 15-19, 2018
SEC Launches FinHub to Facilitate Public Engagement on FinTech Issues
On October 18, the SEC launched FinHub, a new “Strategic Hub for Innovation and Financial Technology.” The SEC envisions that the hub will provide the public with a singular resource for engaging with the SEC on emerging FinTech issues. The FinHub website consolidates the SEC’s speeches, publications, and regulatory actions on four key emerging technologies and issues: blockchain technology, digital marketplace financing, automated investment advice, and artificial intelligence/machine learning. Additionally, FinHub provides a portal through which the public can request assistance from SEC staff on securities issues raised by emerging financial technologies. Continue Reading
On October 18, 2018, the U.S. Securities and Exchange Commission (SEC), announced the launch of the agency’s Strategic Hub for Innovation and Financial Technology (FinHub). FinHub is a resource for industry engagement between financial technology companies (fintechs), market participants, the public, and the SEC. This client update provides a high-level overview of the FinHub initiative and how the SEC envisions industry participation.
FinHub is designed to serve as a focal point for the SEC to engage with fintech companies. Led by Valerie A. Szczepanik, Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC’s Division of Corporation Finance, FinHub provides a portal where the public can engage directly with SEC staff, request a meeting, and receive updates and information about upcoming initiatives. The SEC’s expectation is that FinHub will provide a clear path for entrepreneurs, developers, and their advisers to engage SEC staff, seek input, and test ideas. The FinHub portal covers various fintech topics, such as distributed ledger technology (including digital assets), automated investment advice, digital marketplace financing, and artificial intelligence/machine learning. FinHub also offers a detailed request form, accessible here, that allows submission of background information and supporting documents for a meeting request or request for other assistance.