Blockchain Week in Review: Week of May 13–17, 2019

U.S. Developments

Regulatory Updates

SEC Continues to Delay Decision on Bitwise ETF

On May 14, 2019, the U.S. Securities and Exchange Commission (“SEC”) continued its delay on a decision regarding a bitcoin exchange-traded fund (“ETF”) application. A decision regarding the ETF application, filed by Bitwise Asset Management and the NYSE Arca exchange earlier this year, has been delayed several times by the SEC. The SEC is requesting public comment from interested parties on the proposal. This is one of several crypto ETF applications currently in front of the SEC. Continue Reading

Blockchain Week in Review: Week of May 6–10, 2019

U.S. Developments

Regulatory Updates

CFTC Publishes Enforcement Manual

On May 8, 2019, the U.S. Commodity Futures Trading Commission’s (“CFTC”) Division of Enforcement (“DOE”) published its first public Enforcement Manual (the “Manual”). The Manual establishes general policies and procedures for the DOE’s work in investigating and prosecuting violations of the Commodity Exchange Act. Director of Enforcement James M. McDonald commented on the release at the 41st Annual Conference of the Future Industry Association’s Law & Compliance Division, noting that the Manual was publicly released to ensure that the procedures applied by the DOE in investigating and litigating potential violations of the Commodities Exchange Act and regulations thereunder are available to those potentially affected by them. The CFTC has previously asserted that virtual currencies are commodities and has regularly brought enforcement actions against companies and individuals in the virtual currency market. Continue Reading

Blockchain Week in Review: Week of April 29 – May 3, 2019

U.S. Developments

Regulatory Updates

SEC Suspends Trading for Crypto Exchange and Mining Company

On April 29, 2019, the U.S. Securities and Exchange Commission (“SEC”) announced that it was suspending trading for Bitcoin Generation (“BTGN”), a cryptocurrency exchange and mining company, until 11:59 p.m. ET on May 10, 2019, due to concerns about the accuracy and adequacy of information in the marketplace.  Specifically, the SEC was concerned about “(1) BTGN’s public statements regarding the viability and valuation of a bond that BTGN purportedly acquired from an entity based in the United Kingdom; (2) the amount of BTGN’s outstanding common stock; (3) stock promotional activity relating to BTGN and the market impact of such promotional activity; and (4) the accuracy and adequacy of current public information regarding BTGN’s financial condition.”  BTGN merged with Inolife Technologies and Inolife Technologies Operations in 2018 and offers two ERC20 tokens, the BTGN token and the Bitachon token.  BTGN holds itself out as specializing in the development of blockchain technology applications, cryptocurrency mining and operating a “publicly traded cryptocurrency exchange.” Continue Reading

OFAC Issues Sanctions Compliance Program Guidance

The Office of Foreign Assets Control (OFAC) administers and enforces U.S. economic sanctions programs in accordance with U.S. national security and foreign policy. OFAC had not previously published guidance addressing essential elements for an effective sanctions compliance program (SCP). It has now done so.

Specifically, on May 2, 2019, OFAC published guidance entitled “A Framework for OFAC Compliance Commitments.” OFAC’s Framework clearly establishes the agency’s expectations regarding an effective SCP. Given the importance OFAC places on an effective SCP in its enforcement decisions including the determination of the amount of any civil penalty, companies with international activities should consider whether to update their SCP to meet the agency’s standards.

In this update, we detail the OFAC Framework and outline several OFAC sanctions compliance breakdowns to avoid.

 

Blockchain Week in Review: Week of April 22-26, 2019

U.S. Developments

New York Attorney General Announces Filing in Connection with Tether, Bitfinex Investigation

On April 25, 2019, New York Attorney General Letitia James announced that her office obtained a court order enjoining iFinex Inc., operator of the Bitfinex trading platform, and Tether Limited, issuer of “tether” virtual currency, from further violations of New York law in connection with potential acts of fraud.  Bitfinex’s response to the Order can be found here.

New York’s Office of the Attorney General has expressed concern regarding the potential for conflicts between the interests of virtual asset trading platforms, platform insiders, and customers, and one of the primary objectives of this Order is to address the potential loss of customer funds.  Continue Reading

Blockchain Week in Review: Week of April 15-19, 2019

U.S. Developments

Regulatory Updates

Arca Investment Management Files With SEC to Issue Stablecoin

Arca Investment Management, a California-based investment management firm specializing in digital assets, filed an amended preliminary prospectus with the SEC seeking to make available its Arca UST Coins to investors. The Arca U.S. Treasury Fund (“Fund”) would issue its shares as “Arca UST Coins,” which are digitized securities that would be ERC-20 compatible tokens and utilize the Ethereum blockchain.

In compliance with the “Names Rule” under the Investment Company Act of 1940, the Fund will invest at least 80% of its assets in U.S. Treasury Securities, which could include bills, bonds, and notes issued by the U.S. Treasury; the remaining assets would be held in cash, cash equivalents, or investment-grade bonds. The Fund is designed to function as a stablecoin, because it is structured to have little volatility between the “net asset value” per share and the coin’s value for purposes of trading in a secondary market. The Fund’s shares will be issued as a digitized security token, and all transactions, including issuance and transfer, will be recorded on the Ethereum blockchain, with ownership and transfer of the Arca UST Coin authenticated through cryptography. Arca Investment Management seeks to raise $25 million with its offering. Continue Reading

Dear Enterprise, Have You Developed a Sound and Methodical Blockchain Consortia Engagement Strategy?

We can help. Perkins Coie has identified 34 factors in 5 overarching categories that shape the outcomes of successful enterprise consortia engagement efforts through its analysis of 71 consortia across 12 industries.

Recently, Forbes published an article detailing the ways that large companies, including some of the best-known companies in tech, finance, manufacturing and retail, are forming or joining blockchain consortia or other proprietary blockchain projects. The Forbes article reflects an uptick in enterprise engagement with blockchain, a trend Perkins Coie’s blockchain group has also seen in recent months. Specifically, across industries, companies are coming together to form and participate in blockchain consortia, which allows them to address common issues and challenges—in their industry or with each other—by leveraging the tremendous potential of blockchain and distributed ledger technology (“DLT”). Whether to help address business or operational challenges, or unlock new business models and opportunities, DLT is fueling a new collaborative trend among enterprises. Blockchain consortia are emerging as the vehicle enterprises are using to drive toward common goals and desired objectives. Continue Reading

Blockchain Week in Review: Week of April 8-12, 2019

U.S. Developments

Blockstack Files With SEC for Regulation A+ Token Sale

Blockstack, the New York-based blockchain software provider, has announced that it intends to make a $50 million token offering that would use the SEC’s Regulation A+ exemption. The sale would enable Blockstack to raise capital through the U.S. securities markets via a subsidiary, Blockstack Token LLC, and would be the first SEC-qualified token offering of its kind.

While Blockstack’s offering requires further regulatory review, a Regulation A+ offering provides an alternative to a traditional IPO. Passed as part of the 2012 Jumpstart Our Business Startups (JOBS) Act, the exemption is intended to give companies wider access to the public investing community and to support small business growth and employment by lowering regulatory hurdles for companies trying to raise capital. In addition to exemption from registration, a company filing under Regulation A+ may confidentially submit its offering memorandum to the SEC, undergo an expedited review process, and have fewer ongoing public disclosure requirements. Continue Reading

SEC’s FinHub Publishes Framework for Digital Assets and SEC’s Division of Corporation Finance Grants First No-Action Relief to Token Sponsor

The U.S. Securities and Exchange Commission (SEC) Strategic Hub for Innovation and Financial Technology (FinHub) published a framework on April 3, 2019, for analyzing whether a digital asset is offered and sold as a security under the federal securities laws.

The framework includes “common sense guidance” that provides greater detail and clarity regarding the application of the federal securities laws to digital assets and is intended to be “an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.”

Concurrent with the announcement of the framework, the SEC’s Division of Corporation Finance issued a no-action letter in connection with TurnKey Jet, Inc.’s proposed offering of a digital asset for use in its air charter business. The no-action letter provides the first illustrative example of how a digital asset can be sold without having to register it as a security.

This client update provides an overview of the framework, the TurnKey no-action letter and key takeaways for market participants and companies innovating in digital asset products and services.

Blockchain Week in Review: Week of April 1-5, 2019

U.S. Developments

Regulatory Updates

SEC Releases “No-Action Letter” Stating Turnkey Jet ICO Tokens Are Not Securities and Releases “Framework for ‘Investment Contract’ Analysis of Digital Assets”

The U.S. Securities and Exchange Commission (SEC) Strategic Hub for Innovation and Financial Technology (FinHub) published a framework on April 3, 2019, for analyzing whether a digital asset is offered and sold as a security under the federal securities laws.

Concurrent with the announcement of the framework, the SEC’s Division of Corporation Finance issued a no-action letter in connection with TurnKey Jet, Inc.’s (TurnKey) proposed offering of a digital asset for use in its air charter business. This no-action letter provides the first illustrative example of how a digital asset can be sold without having to register it as a security.

An in-depth review and commentary on this development is available here. Continue Reading

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