Weekly Focus:

  • Jay Clayton to step down as Chairman of the Securities and Exchange Commission
  • Brian Brooks nominated to five-year term as Comptroller of Currency
  • Origin Protocol attacked, resulting in estimated loss of $7 million
  • SEC issues no-action letter for IMVU
  • Mitsubishi UFJ Financial Group plans launch of blockchain payments network in 2021
  • Texas State Securities Board files emergency cease-and-desist orders against ten digital asset investment platforms

Jay Clayton to step down as SEC Chairman at the end of this year

Securities and Exchange Commission Chairman Jay Clayton will step down at the end of this year, according to a November 16, 2020, announcement. This departure caps a tenure of three and a half years, which began in May 2017.

Clayton’s time with the SEC saw a raft of initiatives in the digital asset space, many of which are detailed in Selected SEC Accomplishments May 2017 – November 2020 and were discussed by Chairman Clayton in his November 19, 2020, speech to the Economic Club of New York. These include the creation of the Cyber Unit as part of the SEC enforcement division, the launch of FinHub, and the establishment of the position of Senior Advisor for Digital Assets and Innovation. In the November 19 speech discussing his tenure, Chairman Clayton stated, “I am optimistic that developments in financial technology will help facilitate capital formation, providing promising investment opportunities for institutional and Main Street investors alike. From a financial regulatory perspective, these developments may enable us to better monitor transactions, holdings and obligations (including credit exposures) and other activities and characteristics of our markets, thereby facilitating our regulatory mission, including, importantly, investor protection.”

Brian Brooks nominated for full term as Comptroller of Currency

On November 17, 2020, the White House announced its intent to nominate Brian Brooks as Comptroller of the Currency for a term of five years. Brooks stepped in as Acting Comptroller in May of 2020 after serving as Chief Legal Officer of Coinbase since 2018. During Brooks’ tenure as Acting Comptroller, the Office of the Comptroller of the Currency has provided notable interpretive guidance to banks on digital assets, including Interpretive Letter 1170 and Interpretive Letter 1172, which respectively discuss a bank’s ability to provide custody services for digital assets and hold stablecoin reserves.

The nomination would be subject to approval by the U.S. Senate. As of this writing, the U.S. Senate Banking Committee has not scheduled a nomination hearing.

Origin Protocol hacked

Matthew Liu, founder of the Origin stablecoin, announced on Twitter that the Origin Dollar had been hacked on November 16, 2020, and advised all users to stop buying or minting additional tokens. A detailed Medium post walked through the eight steps used in a sophisticated attack on the protocol. The overall loss is estimated at approximately $7 million, including over $6 million from Origin users and an additional $1 million from Origin and its founders.

Origin launched in September as “The First Stablecoin That Earns a Yield in Your Wallet.”

SEC issues no-action letter to IMVU, Inc., for offer of VCOIN

In a November 19, 2020 no-action letter, the SEC Division of Corporation Finance stated that the offer and sale of VCOIN did not require registration under Section 5 of the Securities Act, or Section 12(g) of the Exchange Act, and that it would not recommend enforcement action for the offer and sale of VCOIN by IMVU, Inc.  The brief SEC letter noted a number of relevant considerations, including the utility of VCOIN, ability to maintain a fixed price, marketing and promotional limitations, and KYC/AML controls.  The SEC also highlighted that VCOIN will be transferable both on and off of IMVU’S platform.  This came as a response to a November 17, 2020, letter on behalf of IMVU, Inc. from its counsel, Perkins Coie.

Mitsubishi UFJ Financial Group plans launch of blockchain payments network in 2021

Mitsubishi UFJ Financial Group announced the 2021 launch of its Global Open Network (Go-Net) payment system, developed as part of a joint venture with U.S.-based Akamai Technologies. The development of Go-Net was first announced in early 2019 and described by Akamai as “a new blockchain-based online payment system that can better serve customers’ and partners’ payment processing needs.”

An early planned use is processing credit card transactions on beverage vending machines in Japan. The Go-Net reports that it can process 100,000 transactions per second and can scale up to over 10 million small payments per second. This system relies upon a reported 280,000 servers in over 100 countries to support the blockchain payment network.

Texas State Securities Board files emergency cease-and-desist orders 10 digital asset investment platforms

The Texas State Securities Commissioner announced enforcement actions against 10 online digital asset investment platforms on November 19, 2020. The first of three emergency cease-and-desist orders alleges that the 10 platforms have engaged in fraud and deception related to their online digital asset business, as well as registration, consumer disclosure, and licensure violations.

Commissioner Travis J. Iles was quoted as saying, “Investors can’t afford to take everything at face value when transacting over the internet. They need to thoroughly investigate before they invest—because on the internet, anyone can fake a trading license, publish phony testimonials or falsely claim to be regulated by an offshore agency.”