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Litigation

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We have reported in this space about how the SEC has indicated that most ICOs probably qualify as securities under U.S. law. see 1-3 and 1-23.  One of the SEC’s first enforcement actions in this regard was against  Maksim Zaslavskiy for his two initial coin offerings allegedly marketed through his companies REcoin and Diamond Reserve Club.   That was followed by a criminal suit. Yesterday, Zaslavskiy sought to dismiss the criminal case, arguing that the cryptocurrencies…

The U.S. Securities and Exchange Commission today charged a former bitcoin-denominated platform and its operator with operating an unregistered securities exchange and defrauding users of that exchange.  The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities. The SEC alleges that BitFunder and its founder Jon E. Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and…

Section 12(k) of the Securities Exchange Act of 1934 provides that, “if in [the SEC’s] opinion the public interest and the protection of investors so require, the Commission is authorized by order to (A) summarily to suspend trading in any security (other than an exempted security) for a period not exceeding 10 business days.” In Orders date February 15, the SEC relied on this rule to suspended trading in three penny-stock companies — Cherubim Interests…

We previously reported on the Kentucky court that issued a temporary restraining order against BitConnect.  On Wednesday, that TRO was extended to February 27. Yesterday, a new lawsuit was brought against BitConnect in federal court in Florida.  The judge in this case refused to enter a TRO freezing the defendants’ assets.  Following are the material parts of the decision: Plaintiffs argue that without the TRO, Defendants may “dissipate money generated from Plaintiffs and the Class or…

We previously reported how, in the Tezos litigation, the court denied a temporary restraining order that sought to enjoin the defendants from selling, transferring, converting, or otherwise disposing of any assets collected or derived from an ICO, holding that plaintiff had failed to show that he is likely to suffer irreparable harm in the absence of injunctive relief.  Today, in connection with the class action against BitConnect, (Paige v Bitconnect, case 3:18-cv-0058-JHM W.D. Ky 1-30-18),…

The CFTC disclosed today that, on January 16, in a case initially filed under seal, the CFTC sued and froze the assets of the creators of a supposed cryptocurrency called “My Big Coin” who allegedly took $6 million from unwitting buyers and used it to fund shopping sprees and pay off earlier investors.  My Big Coin Pay Inc. — a Nevada corporation whose product, the CFTC noted, sounded similar to Bitcoin — its founder Randall…

We have previously discussed the position taken by the U.S. SEC with respect to cryptocurrencies. But the US Commodity Futures Trading Commission (CFTC) also has a role to play. On September 17, 2015, the CFTC brought its first cryptocurrency action against an unregistered Bitcoin trading platform.  Coinflip, Inc. d/b/a Derivabit (Coinflip) and its chief executive officer Francisco Riordan were charged operating a facility for the trading or processing of commodity options (offering to connect buyers and…

UBIA is a Hong Kong company that focuses on the research and application of blockchain technology, with a focus on the IOT.  The U.S. SEC reported that it had temporarily suspended trading in UBIA’s tock through January 22, 2018. The reason for the suspension is because “of (i) questions regarding the accuracy of assertions, since at least September 2017, by UBIA in filings with the Commission regarding the company’s business operations; and (ii) concerns about…

The Texas State Securities Board said yesterday that it entered an Emergency Cease and Desist Order to halt the multiple investment programs operated by BitConnect, an overseas company that claims a market share of $4.1 billion for its cryptocurrency coins. BitConnect’s investor solicitations promise returns of over 100 percent, the TSSB said, for BitConnect’s own proprietary cryptocurrency, called BitConnect Coins, or BCC.  The enforcement action follows BitConnect’s recent announcement that it would hold an ICO…

One of the big questions surrounding ICOs is whether the “coin” (or token) offered in the ICO is considered a security and, therefore, subject to securities laws, including registration.  One of the U.S. SEC’s first official statements on the matter, issued in response to the DAO debacle, was probably most famous for its lack of definitive statements.  It said that:

[F]ederal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale