Regulatory and Legislative Developments

The CFTC DSIO Division Director issued a statement reminding the industry that pooled investment vehicles that trade futures, swaps, and other commodity interests that reference digital assets like Bitcoin and stablecoins are commodity pools under the Commodity Exchange Act and CFTC regulations, and the operators of such vehicles must register as commodity pool operator(s) (CPOs),

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

U.S. Developments

Veritaseum Founder Provides Response to Asset Freeze Order

Responding to an emergency application filed by the Securities and Exchange Commission, Judge LaShann DeArcy Hall of the United States District Court for the Eastern District of New York issued an order on August 12, 2019, freezing Veritaseum accounts and digital assets and ordering founder Reggie Middleton to provide a response to the SEC’s allegations. On the day of the filing, defense counsel asked for permission to file a response prior to a ruling being issued. The Court ruled the same day. On August 19, Mr. Middleton filed a response with the court defending against the SEC’s claims of securities fraud stating among other things that the SEC did not have any evidence that he was attempting to hide company funds by transferring digital assets from one account to another, which Mr. Middleton claimed was done to fund Veritaseum operations.
Continue Reading

The California Consumer Privacy Act (“CCPA”) is a sweeping new law that introduces a host of privacy rights for California consumers, as well as creates a series of robust obligations for certain businesses that collect personal information about those consumers.

Join us for CCPA Week: A series of webinars hosted by Perkins Coie’s Privacy

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

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

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

U.S. Developments

Regulatory Updates

SEC Chairman Clayton Explains that an Asset Can Lose Its Status of Being Labeled a Security

U.S. Securities and Exchange Commission (“SEC”) Chairman Jay Clayton appears to have confirmed SEC-staff analysis of the classification of decentralized digital assets.  Last year, SEC Director of Corporation Finance William Hinman said during a speech that decentralization impacts the classification of digital assets and that, by way of example, Ethereum did not exhibit the properties of a security. Congressman Ted Budd, along with the industry advocacy group Coin Center, wrote a letter to Chairman Clayton asking for clarification on whether the Chairman agreed. 
Continue Reading

U.S. Developments

Denver to Implement Blockchain-Based Elections for Overseas Voters

Denver moves to become the second U.S. jurisdiction to implement a blockchain-based voting system for overseas voters. Active duty military and other eligible overseas voters will be able to use a mobile phone application in the next election to cast their vote on municipal issues.

Denver plans to use Voatz, a mobile application used by West Virginia in the 2018 mid-term election, where an estimated 144 overseas voters made use of the application. Voatz only runs on newer-model smartphones and verifies a voter’s identity by using facial recognition software and, when available, fingerprint analysis. Voatz records votes by using the HyperLedger blockchain framework first created by IBM and now supported by the Linux foundation.
Continue Reading

U.S. Developments

Regulatory Updates

CFTC Plans Public Meeting Addressing Fintech, Including Blockchain Technology

On March 27, 2019, the Commodity Futures Trading Commission (CFTC) Technology Advisory Committee will host a public meeting  at the CFTC headquarters in Washington, DC. The Technology Advisory Committee plans to use the meeting to listen to presentations and consider actionable recommendations from various subcommittees. The subcommittees that will be represented are Automated and Modern Trading Markets, Distributed Ledger Technology and Market Infrastructure, Virtual Currencies, and Cyber Security. For those who cannot attend in person, the CFTC will provide a conference call line and a live webcast. The CFTC will accept written comments through April 3, 2019.
Continue Reading