U.S. Developments

The Fed Chairman Comments on Potential for a US-backed Digital Currency

Jerome Powell, Chairman of the Federal Reserve, wrote to Congress this week discussing the merits of implementing a central bank digital currency (CBDC) in the U.S. The letter responds to a number of questions posed by lawmakers regarding the value that a digital currency would provide and implementation challenges that would need to be overcome. Two Congressmen had expressed concern that the U.S. is being left behind in the wake of technological advances.

Chairman Powell indicates that the U.S. is not currently developing a CBDC, but the Fed is monitoring development elsewhere. Chairman Powell noted that some of the motivating factors for  a digital currency in foreign countries do not necessarily exist in the U.S. Specifically, the demand for cash in the U.S. “remains robust” and there are fast and reliable digital payment services available that are not available in certain other countries. Continue Reading Blockchain Week in Review: Week of November 22, 2019

U.S. Developments

Telegram Submits Answer to SEC Complaint Regarding TON Blockchain Network

On November 12, Telegram Group Inc. (Telegram) submitted its answer and affirmative defenses to a complaint filed against it by the U.S. Securities and Exchange Commission (SEC) in federal court. The SEC previously filed an emergency action against Telegram and received a temporary restraining order to prohibit the launch of the Telegram Open Network (TON) blockchain and the issuance of “Grams,” the company’s virtual currency.

In its answer to the SEC complaint, Telegram argues that its offering of investment contracts known as “Simple Agreements for Future Tokens” or “SAFTs” were compliant with the federal securities laws and offered pursuant to a valid exemption from the registration requirements under the Securities Act of 1933. The company also maintains that its actions regarding the SAFTs were consistent with the guidance offered by the SEC at the time and were conducted in good faith based upon the public comments made by SEC officials at the time. Specifically, Telegram cites various SEC statements and actions on the subject. Continue Reading Blockchain Week in Review: Week of November 15, 2019

U.S. Developments

Litigation

New York Resident Indicted for Duping Investors with Fake ICO Scam

On November 6, the United States Attorney for the Southern District of New York announced a wire fraud charge against Asa Saint Clair, the operator of World Sports Alliance, which held itself out on its website as using sports to promote “economic development and social mobility” and claims an association with the United Nations. The U.S. Attorney, Geoffrey Berman, contends that World Sports Alliance is a “sham affiliate of the United Nations.”

According to the indictment, Saint Clair lured investors into loaning funds, through convertible notes, to World Sports Alliance so that the organization could conduct an ICO for a proprietary digital currency called IGOBIT. Saint Clair allegedly promised investors that they would receive guaranteed returns. According to the government, Saint Clair’s representations were false: Investor funds were not used to conduct an ICO and, instead, Saint Clair diverted the funds and used them to support a lavish lifestyle.

The press release from the United States Attorney’s Office can be found here and the indictment here. Continue Reading Blockchain Week in Review: Week of November 8, 2019

U.S. Developments

Mastercard and Food Co-Op Work Together on Food Visibility Blockchain Solution

Envisible, a company that is dedicated to supply-chain visibility in food systems, has teamed up with Mastercard’s blockchain-based Provenance Solution to offer a food tracking system. The system is called Wholechain and will allow customers to know more about the source of the food they consume and its journey to their table.

Topco Associates, one of the largest group purchasing organizations in the U.S., is a notable early adopter of the system. Topco’s food co-op includes almost 50 member-owners – including supermarkets, wholesale distributors, and pharmacy companies – that collectively bring in about $170 billion in sales annually.

Topco has begun working with its member grocery chains, starting with Food City, to pilot the use of the technology. The first of several species to be tracked will be salmon, cod, and shrimp.

Read more about the launch here. Continue Reading Blockchain Week in Review: Week of November 1, 2019

U.S. Developments

Mark Zuckerberg Testifies Before U.S. House of Representatives Regarding Libra

On October 23, Facebook, Inc. CEO, Mark Zuckerberg, testified before the House Committee on Financial Services regarding Facebook’s efforts to launch Libra, a blockchain-based payments system.  Mr. Zuckerberg’s testimony described Libra as a tool for financial inclusion, which would also comply with relevant U.S. regulatory requirements.

Early in his testimony, Mr. Zuckerberg promised that Libra would not launch anywhere in the world until it had received approval from regulators in the United States.  Later, he asserted that Facebook would be willing to quit the Libra project if the product launched prior to receiving regulatory approval.  Mr. Zuckerberg also addressed concerns related to consumer protection over the financial information generated via the Libra network.  He said that Facebook was in the process of building compliance systems for the Calibra wallet application.  He also noted that Facebook was building out strong consumer protections, customer support, and password recovery services designed to ensure that Libra met or exceeded consumer protection standards. Continue Reading Blockchain Week in Review: Week of October 25, 2019

U.S. Developments

U.S. Federal Regulatory Developments

CFTC, FinCEN, and SEC Leaders Release a Join Statement on Digital Assets

On October 11, 2019, the heads of the Commodity Futures Trading Commission (“CFTC”), Securities and Exchange Commission (“SEC”) and Financial Crimes Enforcement Network (“FinCEN”) issued a joint statement reminding those involved with digital assets about their obligations to protect against money laundering and terrorist financing, as required by the Bank Secrecy Act (“BSA”). The statement clarifies that AML/CFT regulations apply to “financial institutions” as defined under the BSA and includes certain introducing brokers, broker-dealers, money services businesses, and SEC-registered mutual funds. Financial institutions under the BSA definition must, among other things, establish and implement anti-money laundering programs and certain recordkeeping and reporting programs, according to the statement. Continue Reading Blockchain Week in Review: Week of October 11, 2019

U.S. Developments

REGULATORY

House Passes Bill to Review How Blockchain Technology Can Improve FinCEN

The U.S. House of Representatives passed a bill sponsored by Anthony Gonzalez (R-OH) that requires the Director of the Financial Crimes Enforcement Network (“FinCEN”) to carry out a study on the status of implementation and internal use of blockchain and other emerging and innovative technologies to determine whether they can be leveraged to make FinCEN’s data analysis more efficient and effective, including ways to improve the dissemination of information it collects and stores to better support its investigations.

Representative Gonzalez stated that his “bill makes sure that we are using the best technology we have available to find and stop the money laundering that makes all these crimes not only possible, but financially profitable for cartels, traffickers, and terrorists.” The bill now resides with the U.S. Senate for consideration. Continue Reading Blockchain Week in Review: Week of September 27, 2019

U.S. Developments

Regulatory

VanEck/SolidX Bitcoin ETF Proposal Withdrawn.

Facing an October 18 deadline for the Securities and Exchange Commission (“SEC”) to approve or disapprove, Cboe BZX Exchange withdrew the proposed rule change to list and trade SolidX Bitcoin Shares issued by VanEck SolidX Bitcoin Trust on September 13, 2019. The decision had already been delayed on March 29, 2019, and August 12, 2019. This same exchange-traded fund (“ETF”) proposal was also withdrawn in January 2019 after the government shutdown threatened to force a rejection of the proposal. Cboe BZX Exchange gave no explanation for the withdrawal of the proposed rule change in the September 17, 2019, filing. According to Gabor Gurbacs, the VanEck director of digital asset strategies, the company is still working to bring a Bitcoin ETF to market in the United States. Continue Reading Blockchain Week in Review: Week of September 20, 2019

U.S. Developments

VanEck and SolidX to Offer Bitcoin ETF to Qualified Institutional Buyers

On September 3, 2019, VanEck Securities Corp. and SolidX Management LLC announced that they are seeking to use Rule 144A of the Securities Act to issue shares in the VanEck SolidX Bitcoin Trust to qualified institutional buyers. According to a joint statement by the companies, the shares would be the first Bitcoin product for institutional investors that are cleared and would feature the same creation and redemption process common to traditional exchange-traded funds (“ETFs”).

Under the proposal, SolidX will be the sponsor of the Bitcoin Trust while VanEck will market the fund. BNY Mellon will be the daily fund accountant, administrator, and transfer agent. A syndicate of underwriters has provided $125 million of insurance according to the head of VanEck’s ETF products. From September 5, 2019 the shares will be quoted on OTC Link ATS, a Securities and Exchange Commission (“SEC”)–regulated alternative trading system. Continue Reading Blockchain Week in Review: Week of September 6, 2019

U.S. Developments

Enforcement and Litigation Developments

Craig Wright Faces Sanctions

Craig Wright, the self-proclaimed inventor of Bitcoin, has been tied up in litigation since February 2018 related to his partnership with the late David Kleiman.  The case alleged that Wright worked to seize bitcoin owned by Kleiman after his death.  On August 27, 2019, in response to plaintiffs’ motion to compel, a magistrate judge ordered sanctions against Wright for his “continued non-compliance” with court orders to provide information about Wright’s bitcoin holdings. Continue Reading Blockchain Week in Review: Week of August 30, 2019