Below is a summary of some of the significant legal, regulatory and industry actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.

U.S. Developments

Regulatory Developments

CFPB Declines to Make

The SEC announced yesterday a settlement with Bitcoin Investment Trust (BIT) and SecondMarket, Inc. (SecondMarket).  According to the Administrative Order, the SEC claims that BIT and SecondMarket redeemed BIT shares during an ongoing distribution and, therefore, violated Rules 101 and 102 of Regulation M.
Continue Reading SEC Settles Charges With FinTech Companies in Unlawful Redemption of Bitcoin Investment Trust Shares During Distribution

On September 17th, the Commodity Futures Trading Commission (“CFTC”) announced an enforcement order and settlement against an unregistered bitcoin options trading platform. The order is notable for six reasons:

1) It is the first official pronouncement from the CFTC that, “Bitcoin and other virtual currencies are encompassed in the definition [of a commodity under the

The Financial Action Task Force (FATF) has issued 2015 Guidance calling for a “risk-based approach” to virtual currencies.  This Guidance follows its 2014 initial Report on virtual currencies.  Since FATF’s 2014 Report, virtual currencies, the risks associated with them, and the individuals and entities using them have evolved substantially.  Law enforcement and regulatory agencies across

Federal authorities announced this week a settlement with Ripple Labs Inc. and its subsidiary, XRP Fund II, resolving an investigation by FinCEN and the Department of Justice into violations of the Bank Secrecy Act.  The settlement generally calls for the company to pay $700,000 in fines and forfeitures, to move Ripple Trade (a version of the open source wallet software operated by Ripple Labs) to a registered Money Services Business, and to make changes to the AML compliance programs at Ripple Labs and its subsidiaries.
Continue Reading Federal Authorities Announce Settlement with Ripple Labs Inc. Resolving Investigation

Yesterday, the Securities and Exchange Commission (“SEC”) announced that Erik Voorhees (“Voorhees”), co-owner of Bitcoin-related websites SatoshiDICE and FeedZeBirds, has agreed to pay approximately $50,000 to settle allegations regarding the unregistered sale of securities.    

On March 10, the Securities Commissioner of the State of Texas issued an emergency order against Balanced Energy, LLC (“BE”), ordering it to immediately cease and desist its sale of working interests in oil wells (“C&D”). The primary basis for the C&D appeared to be that the working interests constituted unregistered securities, and that by offering them for sale without a qualified exemption, BE was violating both state and federal securities laws. However, the C&D also noted BE’s claims that it is the first company in the oil and gas exploration and production industry to accept bitcoin as payment for its prospects. The C&D concluded that BE’s failure to disclose the risks associated with using bitcoin to purchase unregistered working interests constituted fraud and materially misleading conduct in connection with the offer for sale of securities – activity that threatened immediate and irreparable public harm. The C&D specifically focused on perceived risks inherent to the use of bitcoin and the risk that fluctuation in the price of bitcoin may affect business operations. These findings regarding BE’s use of bitcoin follow the Securities Commissioner’s previous issuance of a press release addressing the risks associated with investments tied to digital currencies.
Continue Reading Texas Cease and Desist Order

On February 28, 2014, Mt. Gox, the oldest Bitcoin exchange, filed for bankruptcy reorganization under Japanese law, toppling from its place in the Bitcoin community to insolvency. This filing confirmed rumors of financial troubles spawned by Mt. Gox’s sudden suspension of trading on February 25 and focused increased legal scrutiny on Mt. Gox’s business practices.

Mt. Gox’s downward legal spiral began in May 2013, when the Department of Homeland Security seized $5.5 million in funds held in its U.S. subsidiary’s processing accounts for failure to register as a U.S. Federal Money Services Business. Until then, despite having experienced other losses due to security breaches and other technical failures, Mt. Gox had enjoyed a rapid rise in popularity to become the largest Bitcoin exchange in the world, at one point handling as many as 80% of Bitcoin trades worldwide. The negative press and loss of consumer confidence from the government seizure of Mt. Gox’s funds, combined with the rise of several strong market competitors cut down Mt. Gox’s market share significantly. However, despite its challenges, Mt. Gox continued to conduct approximately 34% of all Bitcoin exchange transactions in early February 2014.
Continue Reading Mt. Gox’s Legal Problems Lead to Bankruptcy and Increased Scrutiny

Two users of, Pascal Reid and Michell Espinoza, were arrested last week in what appears to be the first case where bitcoin sellers have been prosecuted under state anti-money laundering and money transmission laws.  These arrests illustrate that under some state money transmitter laws, the direct sale of bitcoin can constitute money transmission—and that selling bitcoin without a money transmitter license can result in criminal charges.  Where a seller of bitcoin knows (or has reason to believe) that the transaction involves proceeds derived from or to be used in furtherance of illegal activity, this could separately result in charges under state anti-money laundering laws. 
Continue Reading Two Florida Users of Arrested for Money Laundering and Unlicensed Money Transmission

The Financial Crimes Enforcement Network, or FinCEN—the Treasury Department agency that oversees anti-money laundering efforts—has recently sent letters to several Bitcoin-related businesses saying that they may be engaging in money transmission without being registered with FinCEN.  Under FinCEN’s regulations, any entity engaging in money transmission must register as a “money service business,” or face potentially severe civil and criminal penalties. 
Continue Reading FinCEN’s Bitcoin Letter-writing Campaign