What Happened?

The New York Department of Financial Services (NYDFS or Department) released proposed updates to its guidance on the self-certification process for listing and delisting digital assets. It also announced significant changes to the Department’s “Greenlist” of vetted digital assets.

This industry development affects companies that have received permission to engage in virtual currency business activity from the NYDFS, either through a “bitlicense” or a limited purpose trust charter.

In June 2020, the Department issued guidance that permitted digital asset businesses to self-certify digital assets subject to a Department-approved coin-listing policy. It also created a Greenlist of digital assets which all regulated businesses could offer subject to that guidance.

The proposed regulatory update expands the scope and nature of the self-certification process and mandates virtual currency companies implement a new coin-delisting policy. The changes to the Greenlist, effective immediately, reduce the assets included on the list and restrict use of the list to companies that have a Department-approved delisting policy in place.

What Affected Companies Need To Do Next

The updates made to the NYDFS’s Greenlist will result in the removal of many approved coins.[1] Although the Department is not requiring digital asset companies to immediately stop services for these coins, they are urging them to collaborate and determine the proper process for removing them.[2] This is to avoid any potential market disruption. Future listings of coins on the Greenlist require notice to the Department and establishment of a Department-approved delisting policy.

The Department is now requiring all regulated digital asset businesses to establish and maintain policies for delisting coins. The NYDFS expects that each business will create and enforce a policy for removing certain digital assets from support with minimal impact on the public and “consistent with safety and soundness.” Delisting may be required due to further changes to the Greenlist and in connection with the risk tracking required by a coin-listing policy. In contrast, coin-listing policies remain optional.

TAKE ACTION: Virtual currency entities must meet with the NYDFS by December 8, 2023, to “preview” their coin-delisting policies and must submit a final version to the Department by January 31, 2024.

The NYDFS’s proposed guidance would update the already robust coin self-certification framework. The proposal expands requirements for governance, risk assessment, and tracking. It also includes a new ban on certain types of digital assets. Stablecoins, exchange coins,[3] and bridged coins[4] may not be self-certified under the coin-listing policy of a regulated business. Additionally, digital assets that can be self-certified must be reviewed in light of the resiliency of their native protocol and circulating supply.

TAKE ACTION: Comments to the proposed “Coin-Listing Policy Framework” must be submitted to the Department by October 20, 2023.

Want To Learn More?

Contact Fintech Industry Group subject matter leaders, Andrew Lucas, former NYDFS regulator and senior fintech counsel, and DJ Mills, financial services lawyer, to discuss the implications of the Department’s proposal and ideas for what organizations need to do next. 

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[1] Last updated in June 2022, the list previously included 0x (ZRX), Aave (AAVE), Bancor Network Token (BNT), Basic Attention Token (BAT), Bitcoin Cash (BCGH), Chainlink (LINK), Dogecoin (DOGE), Ethereum Classic (ETC), Kyber Network (KNC), Litecoin (LTC), Livepeer (LPT), Lumens (XLM), OmiseGO (OMG), Ripple (XRP), Synthetix (SNX), Wrapped Bitcoin (wBTC), and Z.com USD (ZUSD).

[2] Virtual Currency Entities that have otherwise received the Department’s approval to list certain virtual currencies pursuant to an application with the Department for a material change to their businesses are permitted to continue listing virtual currencies.

[3] “A Virtual Currency Entity cannot self-certify any coin that is issued by a cryptocurrency exchange or can otherwise be used to provide benefits on a cryptocurrency exchange.”

[4] “A Virtual Currency Entity cannot self-certify any coin that circulates on a protocol in which it is not natively issued. This restriction extends to any coin designed to serve as collateral or governance for an application that enables the transfer of coins across different protocols (e.g., token bridge platforms).”

Financial technology firms and certain banks and bank holding companies can expect to face increased scrutiny as the Board of Governors of the Federal Reserve System takes another step to stem risks related to crypto-assets, use of blockchain technology, and complex fintech partnerships with nonbanks to deliver financial services to customers. Through its newly announced Novel Activities Supervision Program (“NAS Program”), the Federal Reserve will be taking a harder look at its supervised banking organizations, even those with less than $10 billion in assets, “to ensure that the risks associated with innovation are appropriately addressed” in four key areas:

Continue Reading The Federal Reserve’s Novel Activities Supervision Program: What Banks and Nonbanks Need to Know

Perkins Coie LLP is pleased to bring you this updated Digital Asset SEC Timeline.

The Digital Asset SEC Timeline serves as an interactive compilation of select SEC guidance, enforcement actions, and speeches relating to the application of the federal securities laws to digital assets. Beginning with the release of the DAO Investigative Report in July 2017, the Timeline includes relevant information for analyzing the offering, issuance, and trading of certain digital assets in the context of the federal securities laws. As the Timeline is extensive, the earliest events are summarized on our historical page. Please click here to view that portion of the Timeline.  

This Timeline is meant to be a resource for those following SEC actions and guidance related to digital assets and to assist experienced securities counsel in assessing the applicability of the federal securities laws. The Timeline is for informational purposes only and does not constitute legal advice. If you are, or are planning to engage in transactions involving digital assets, you may want to contact experienced securities counsel.

Information in the Timeline is provided “as-is,” and may not reflect the latest guidance from the SEC and/or other federal or state regulatory authorities. The Timeline contains links to third-party websites. Such links are only for the convenience of the reader or user. Use of and access to the Timeline, including the links contained within the Timeline, do not create an attorney-client relationship with Perkins Coie LLP.

Perkins Coie LLP is pleased to bring you this updated Digital Asset SEC Timeline.

The Digital Asset SEC Timeline serves as an interactive compilation of select SEC guidance, enforcement actions, and speeches relating to the application of the federal securities laws to digital assets. Beginning with the release of the DAO Investigative Report in July 2017, the Timeline includes relevant information for analyzing the offering, issuance, and trading of certain digital assets in the context of the federal securities laws.

This Timeline is meant to be a resource for those following SEC actions and guidance related to digital assets and to assist experienced securities counsel in assessing the applicability of the federal securities laws. The Timeline is for informational purposes only and does not constitute legal advice. If you are, or are planning to engage in transactions involving digital assets, you may want to contact experienced securities counsel.

Information in the Timeline is provided “as-is,” and may not reflect the latest guidance from the SEC and/or other federal or state regulatory authorities. The Timeline contains links to third-party websites. Such links are only for the convenience of the reader or user. Use of and access to the Timeline, including the links contained within the Timeline, do not create an attorney-client relationship with Perkins Coie LLP.

On March 1, 2023, the U.S. Department of Justice (DOJ) unsealed an indictment against the CEO of a publicly traded healthcare company (the Executive) relating to charges of an insider trading scheme. The indictment represents the first time the DOJ has brought criminal insider trading charges stemming from an executive’s use of a Rule 10b5-1 trading plan. The investigation is part of a data-driven initiative led by the DOJ’s Fraud Section to identify executive abuses of 10b5-1 trading plans.

Continue Reading DOJ Brings First Criminal Charges Stemming From Use of Rule 10b5-1 Trading Plan

FTX filed its presentation to the Official Committee of Unsecured Creditors (UCC), reporting that FTX has located about $5.5 billion of cash and other liquid assets but less than $1.8 billion of digital assets identified with both FTX.com and FTX US, excluding illiquid tokens. FTX reported that it expects to find and liquidate additional assets and value. This additional value is anticipated to be realized through selling securities, subsidiaries, and real estate, as well as through lawsuits (known as adversary proceedings in bankruptcy cases) yet to be filed. Examples of litigation targets seem to include recipients of: (1) over $2 billion in loans to insiders, (2) a $2.1 billion payment to Binance to repurchase Series A shares, (3) $93 million in political donations, (4) transfers to Voyager of over $440 million within the “preference period,” (5) parties involved with Alameda’s use of “artificial collateral,” and (6) others.

Time will tell how much (and what) is collected, from whom, and at what cost.

Meanwhile, FTX reports that representatives of all the FTX debtors, the UCC, and the joint provisional liquidators appointed in the Bahamas have reached an agreement to coordinate their efforts and jointly work on possible structures for a Chapter 11 bankruptcy plan for the FTX Chapter 11 debtors; they have also filed a copy of their Settlement and Cooperation Agreement on the docket. Not an easy task.

Perkins Coie LLP is pleased to bring you this updated Digital Asset SEC Timeline.

The Digital Asset SEC Timeline serves as an interactive compilation of select SEC guidance, enforcement actions, and speeches relating to the application of the federal securities laws to digital assets. Beginning with the release of the DAO Investigative Report in July 2017, the Timeline includes relevant information for analyzing the offering, issuance, and trading of certain digital assets in the context of the federal securities laws.

This Timeline is meant to be a resource for those following SEC actions and guidance related to digital assets and to assist experienced securities counsel in assessing the applicability of the federal securities laws. The Timeline is for informational purposes only and does not constitute legal advice. If you are, or are planning to engage in transactions involving digital assets, you may want to contact experienced securities counsel.

Information in the Timeline is provided “as-is,” and may not reflect the latest guidance from the SEC and/or other federal or state regulatory authorities. The Timeline contains links to third-party websites. Such links are only for the convenience of the reader or user. Use of and access to the Timeline, including the links contained within the Timeline, do not create an attorney-client relationship with Perkins Coie LLP.

“Easter eggs are basically messages or particular references deliberately hidden throughout a movie that the usual movie-goer often fails to notice but they are always there.”

Most articles about Chief United States Bankruptcy Judge Michael Glenn’s opinion that “Earn Assets in Earn Accounts constitute property of the Estates” (opinion, p. 45) focus on the court’s reliance on the terms of service for the Celsius Earn Accounts and how those terms effectively transferred ownership of the assets in those accounts. But did Judge Glenn place an Easter egg in the opinion that could be argued in the future?

Sharp-eyed bankruptcy professionals will note the following statement by Judge Glenn on p. 41 of the opinion:

Thus, even if the parties’ contract purports to provide the creditor with a security interest in property, unless the security interest is perfected under applicable non-bankruptcy law, a trustee can assert strong-arm power under section 544(a) of the Bankruptcy Code to avoid the lien. 11 U.S.C. § 544(a). See also In re Castle Ventures, Ltd., 167 B.R. 758, 765 (Bankr. E.D.N.Y. 1994) (“However, section 544(a) of the Code, also referred to as the ‘strong arm’ clause, allows a trustee in bankruptcy to avoid liens and security interests against the debtor’s estate which were not properly perfected under state law prior to the debtor’s bankruptcy filing.”).

The “strong arm” power in a bankruptcy case allows a bankruptcy trustee to set aside (or “avoid”) an interest in property that could be reached by a judgment lien creditor. See 11 U.S.C. § 544. If a party places assets in the possession of a debtor in such a way that a judgment creditor of that debtor could levy execution on that asset, the asset can become property of the debtor’s bankruptcy estate. This provision has been in the U.S. Bankruptcy Code since it became effective in 1979 and has been used innumerable times in the last 40-plus years to allow bankruptcy trustees, Chapter 11 debtors in possession, and others to recover assets for bankruptcy estates.

Celsius apparently did not argue the strong arm clause as a basis to justify its argument that its stablecoins and the assets in the Earn Accounts would be property of its bankruptcy estate. Could the reference to the “strong-arm” power be Judge Glenn’s way of telling customers that the terms of service might not be the only way that Celsius might take and use what had been in their Earn Accounts? That remains to be seen.

The Commodity Futures Trading Commission (CFTC) Settlements Timeline serves as an interactive compilation of select CFTC guidance, enforcement actions, and speeches relating to the application of the federal securities laws to digital assets. Beginning with the Order filed in September, 2015 by the CFTC requiring Coinflip and its chief executive officer Francisco Riordan to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC Regulations, specifically, by operating a facility for the trading or processing of commodity options without complying with the CEA or CFTC Regulations otherwise applicable to swaps or conducting the activity pursuant to the CFTC’s exemption for trade options.

This Timeline is meant to be a resource for those following CFTC actions and guidance related to digital assets and to assist experienced counsel in assessing the applicability of the CFTC Regulations.

The Timeline is for informational purposes only and does not constitute legal advice. If you are, or are planning to engage in transactions involving digital assets, you may want to contact experienced securities counsel.

Information in the Timeline is provided “as-is,” and may not reflect the latest guidance from the CFTC and/or other federal or state regulatory authorities. The Timeline contains links to third-party websites. Such links are only for the convenience of the reader or user. Use of and access to the Timeline, including the links contained within the Timeline, do not create an attorney-client relationship with Perkins Coie LLP.

Bankruptcy court hearings are often recorded and can be listened to at your convenience. The “first-day hearing” in the FTX Trading case occurred on November 22, 2022, was saved into two files with the first part available here and the second part available here.

The links will download a PDF file that contains an audio file as an attachment. To listen to the audio file, save it on your local drive, open the PDF document in Adobe Acrobat, and click on the paperclip image (usually in the left margin) to launch your audio player.

You can find future hearings at FTX Trading’s Claim Agent site and search for either “pdf” or “audio” to find the recordings. Please note, these files work well on computers but not on mobile devices.