The U.S. SEC has shown it seriousness in cracking down on noncompliant ICOs by pursuing enforcement in a number of different ways. We have reported on the SEC’s recent first-time enforcement action against an entity for operating as an unregulated national securities exchange and its recent first cases imposing civil penalties solely for ICO securities offering registration violations. Yesterday marked another new first. The cases brought against celebrities DJ Khaled and Floyd Mayweather were the first…
LabCFTC, the FinTech engagement arm of the Commodity Futures Trading Commission (CFTC), this week released a primer on smart contracts that provides examples of contract logic, describes a decentralized blockchain, and details applications. The primer also highlights potential operational and regulatory challenges and risks. The primer acknowledges that a smart contract potentially can be a binding legal contract subject to a variety of legal frameworks. Among them are the CFTC, federal and state securities, tax,…
On November 27, 2018, the U.S. District Court for the Southern District of California issued a decision that is already being reported as one holding that a token is not a “security.” That is incorrect. The court left for another day the issue of whether the token in question meets the securities law definition of a “security.” It merely held that, for purposes of the request for a preliminary injunction, the court could not conclude that…
On Friday, November 16, the U.S. Securities and Exchange Commission announced that it had settled charges against two companies that sold digital tokens in ICOs. Munchee, Inc. was the Commission’s first non-fraud ICO registration case and the Commission did not impose a penalty or include undertakings from Munchee, which stopped its offering before delivering any tokens and promptly returned proceeds to investors. Friday’s cases are the first cases imposing civil penalties solely for ICO securities…
Last Friday, November 16, the U.S. Securities and Exchange Commission Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets issued a “Statement on Digital Asset Securities Issuance and Trading.” The purpose was to note that, while the SEC encourages technological innovation, market participants must still adhere to the Commission’s well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated…
On November 8, the SEC settled charges against Zachary Coburn, the founder of EtherDelta, a digital token trading platform. This is the SEC’s first enforcement action against an entity for operating as an unregulated national securities exchange. Mr. Coburn consented to the SEC’s order and agreed to pay $300,000 in disgorgement, $13,000 in prejudgment interest, and a $75,000 penalty. In its order, the SEC concluded that EtherDelta’s trading system met the definition of “exchange” under…
On October 24, 2018, the Japanese Financial Services Agency (JFSA) accredited the Japan Virtual Currency Exchange Association (JVCEA, established in March 2018) as a self-regulatory organization under the Payment Services Act (PSA). On the same day, an initial set of self-regulations and related guidelines came to effect, as prepared by the JVCEA. Going forward, it is anticipated that the JVCEA will cooperate with continued inspection and monitoring by the JFSA and will act to enhance…
Cryptoassets continue to be a hot topic for financial services regulators. On 19 October 2018, it was the turn of the Securities and Markets Stakeholders Group (“SMSG“), which represents various stakeholders’ interests to the European Securities Markets Authority (“ESMA“). The SMSG published a report setting out its advice to ESMA on how to contain the risks of cryptoassets and ICOs.
Our blog reports on blockchain developments around the world and across industries. For those of our readers interested in some blockchain basics, Baker McKenzie has just published “Unhashing Blockchain: Blockchain Explained.” In it, we provide an overview of blockchain technology, discuss how it is being used and identify the legal issues that will arise (or have already arisen) in connection with this nascent technology.
On Monday 3 October, the European Parliament adopted a non-legislative Resolution on distributed ledger technologies (DLT) / blockchain. In the Resolution, the Parliament makes clear that it is keen to make Europe a leading player in the blockchain field. It discusses a range of blockchain use cases including: improving data efficiency and the reporting of clinical trials in the health sector; improving supply chain processes, such as facilitating the forwarding and monitoring of origin of…