SEC v. Crowd Machine, Inc. was a lawsuit that the United States Securities and Exchange Commission brought against Crowd Machine Inc. (“CMI”), and others, for CMI’s making materially false and misleading statements in connection with an initial coin offering of Crowd Machine Compute Tokens (CMCTs). Rather than using the ICO proceeds for the stated purpose, Defendants diverted more than $5.8 million in ICO proceeds to gold mining entities in South Africa. The SEC also alleged…
The New York State Department of Financial Services (DFS) views itself as the leading cryptocurrency state regulator in the country. Its regulatory scheme began with its introduction of the BitLicense, a set of regulations that prohibited companies from engaging in “virtual currency business activity” in New York, or with New York residents, without a license. Very few were actually applied for, and fewer still issued. Much has been written about how this regulatory environment has stymied…
We have previously written about the SEC’s case against LBRY, which offered a video sharing application. Its native token, LBC, was meant to be used by content creators and audience members on LBRY’s “content marketplace,” which billed itself as an alternative to YouTube. LBRY had a real business and real customers. But the SEC sued LBRY, claiming that it had conducted an unregistered offering of digital asset securities. LBRY tried to fight back aggressively, noting that…
On October 13, 2023, California Governor Gavin Newsom approved the Digital Financial Assets Law. Among its provisions, the law prohibits a person from engaging in digital financial asset business activity with or on behalf of a California resident unless, among other things, the person is licensed with California’s Department of Financial Protection and Innovation. “Digital financial asset” is defined as a digital representation of value that is used as a medium of exchange, unit of…
We have been writing for years about what had become an almost quixotic quest for U.S. SEC approval of a spot Bitcoin ETF (see one such post here). The D.C. Circuit’s decision in the Grayscale case (see post here) was a clear repudiation of the SEC’s position and infused the industry with hope that such approval might finally be forthcoming. Though it has not happened yet, this post provides an update on this topic. There…
On September 18, 2023 the New York State Department of Financial Services (DFS) issued an update on an ongoing initiative to strengthen DFS oversight of virtual currencies. A central aspect of the proposed guidance are enhanced criteria for coin-listing and delisting procedures. DFS wants to establish itself (or, as DFS sees it, maintain is role) as the leading cryptocurrency regulator in the country. Towards that end, the DFS press release states: “The Department has added more…
We recently reported on the first NFT enforcement action brought by the U.S. Securities and Exchange Commission. On September 13, 2023, the Commission brought its second, against Stoner Cats 2 LLC (SC2), the entity responsible for the cartoon series Stoner Cats. The animated Web3 series featured the voices of Ashton Kutcher, Mila Kunis, Chris Rock, Jane Fonda, Seth MacFarlane and others. The series is about the adventures of cats who learned to talk after inhaling…
We previously reported on the Friel v Dapper Labs decision, which was a first-of-its-kind decision in the U.S. courts, holding that an NFT (non-fungible token) can be a security under U.S. securities law. On August 28, 2023, the U.S. Securities and Exchange Commission brought its first NFT enforcement action, against Impact Theory, LLC, a media and entertainment company headquartered in Los Angeles. It read very much like the SEC’s actions concerning cryptocurrency. As in those…
We have previously reported on U.S. Securities and Exchange Commission cases against influencers for violating the anti-touting statute. On August 22, 2023, the SEC announced settled charges against Washington, D.C.-based investment adviser Fundrise Advisors, LLC arising from the firm’s solicitation arrangements with online content creators. The following information is taken from the Order. Fundrise has been registered with the SEC as an investment adviser since September 25, 2014 and, as of March 31, 2023, reported…
We have previously reported (here and here) on the refund lawsuit that a couple, the Jarretts, brought against the U.S. Internal Revenue Service. Mr. Jarrett produced Tezos tokens, a form of cryptocurrency, through a process known as “staking” — a system being used by more and more blockchains. As Jarrett saw things, staking uses existing Tezos tokens and computing power to produce new tokens. Thus, he argued, he would owe taxes on the tokens only…