Eric Wasik

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Taxpayers should take prompt action to assess their situation, yet move carefully before making representations or filings to the IRS.

Over the past month, the Internal Revenue Service (IRS) has sent letters to over ten thousand taxpayers that it believes may have failed to report virtual currency transactions (primarily Bitcoin-related) or may have omitted income derived from virtual currency transactions. These letters continue to receive significant press coverage from major financial outlets and may be just the beginning of the government’s notification, collection and enforcement efforts. For example, the IRS has also recently sent notices to certain virtual currency investors informing them that the investors’ reporting does not match other records in the IRS’s possession.

Taxpayers who receive an IRS letter, receive an investor notice, or have questions about reporting their past virtual currency transactions (e.g., sales of tokens or exchanges of one token for another) should consider the following advice:…
Continue Reading You Received One of the IRS Crypto Letters—What’s Next?

U.S. Developments

Regulatory Developments

SEC Issues Second No Action Letter for Blockchain-Based Project

On July 25, 2019, the staff of U.S. Securities and Exchange Commission (SEC) issued its second ever no-action letter to a company planning to issue blockchain-based tokens. The letter was issued to Pocketful of Quarters (PoQ), a gaming start-up. PoQ seeks to issue an Ethereum-based ERC-20 stablecoin, “Quarters,” for use within its gaming platform.

No action-letters are public letters from the SEC staff to specific projects, stating that the agency will not recommend enforcement if the project follows and meets certain requirements and commitments stated in the letter. They can be useful for other companies seeking to set up similar projects, laying out the perimeters that the SEC desires from blockchain projects.
Continue Reading Blockchain Week in Review: Week of July 26, 2019

U.S. Developments

Regulatory Developments

SEC and FINRA Issue Joint Statement on Digital Asset Custody Issues

On July 8, 2019, the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) (collectively, “the Staffs”) issued a joint statement addressing questions each has received from market participants regarding proper custody of digital assets under both federal securities laws and FINRA’s rules.

The joint statement highlights the importance of the Customer Protection Rule to protect investors from loss of assets and to help the SEC monitor for potential fraud. The joint statement discusses both broker-dealers seeking to have custody of digital assets and broker-dealers seeking to conduct noncustodial activities. For the latter, the Staffs mention several noncustodial models and note in the statement that generally these noncustodial activities “do not raise the same level of concern among the Staffs, provided that the relevant securities laws, SRO rules, and other legal and regulatory requirements are followed.”…
Continue Reading Blockchain Week in Review: Week of July 12, 2019

U.S. Developments

Regulatory Developments

SEC Chair’s Recent Comments on Digital Assets

Securities and Exchange Commission (“SEC”) Chairman Jay Clayton touched on digital asset issues during two recent appearances. On June 4, Chairman Clayton addressed the Mid-Atlantic Regional Conference, where he noted the work of SEC staff to trace transactions across blockchains. Specifically, he mentioned that tracing was critical in two recent cases where the SEC was able to obtain preliminary injunctions to stop alleged potential frauds.

On June 6, Chairman Clayton appeared on CNBC, where he discussed virtual currency exchange-traded funds (“ETFs”). He stated that the SEC is engaging with those seeking ETFs but that core issues, such as custody of digital assets and prevention of market manipulation, continue to be sticking points that the SEC is working through.
Continue Reading Blockchain Week in Review: Week of June 14, 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 13–17, 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 May 6–10, 2019

U.S. Developments

Regulatory Updates

SEC’s Valerie Szczepanik Speaks at SXSW

The U.S. Securities and Exchange Commission’s (“SEC”) Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets Digital and Innovation, Valerie Szczepanik, participated in a Q&A session at the South by Southwest (SXSW) conference in Austin, Texas. Szczepanik spoke on a number of blockchain-related topics, including the SEC’s regulatory approach to digital assets and stablecoins.

On the regulatory approach to digital assets, Szczepanik encouraged companies to approach the SEC and its FinHub to discuss and engage in a discussion about proposed projects and approaches to digital assets before launching to the public. Szczepanik highlighted the recent action against Gladius as an example of a company working with the SEC, albeit after the fact. In that action, Gladius avoided the imposition of penalties due to self-reporting and cooperation with the SEC.
Continue Reading Blockchain Week in Review: Week of March 18-22, 2019