A new bill, the Token Taxonomy Act was introduced to congress to amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude digital tokens from the definition of a security, to direct the Securities and Exchange Commission to enact certain regulatory changes regarding digital units secured through public key cryptography, to adjust taxation of virtual currencies held in individual retirement accounts, to create a tax exemption for exchanges of one virtual currency for another, to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash, and for other purposes.
Continue Reading New Effort to Exempt Crypto Currency from Certain SEC, Tax and Other Regulatory Burdens

The use of blockchain (or distributed ledger) technology for games (a.k.a blockchain games) and token-based digital collectibles is on the rise. The overnight popularity of CryptoKitties was as significant to raising the awareness of digital collectibles as Pokémon Go was to location-based AR games. However, the ecosystem extends well beyond CryptoKitties, and is growing rapidly. The ecosystem includes cross-platform crypto currency and tokens, digital asset marketplaces, digital collectibles, decentralized virtual worlds and more. A significant amount of investment is going into this space. Blockchain gaming startup Forte has announced a deal with Ripple’s Xpring crypto currency platform to invest $100 million in game developers who make games based on blockchain technology. While the opportunities in this space are real, there are a number of legal issues that can arise depending on how a company implements its offerings.
Continue Reading Blockchain Games and Collectibles – Patents and Other Legal Issues

The use of digital securities or security tokens has coincided with the explosion of crypto-currencies and efforts to establish Internet-traded coins or tokens with utility as a form of currency. Lost amidst the enthusiasm over the revolutionary implications of crypto-currencies is the simple fact that security tokens which use block-chain technology and smart contracts have significant advantages over traditional platforms for issuing, holding and trading securities.
Continue Reading Security Tokens — A Superior Platform for Securities Holding and Trading

On September 11, 2018, the U.S. District Court for the Eastern District of New York denied[1] a motion to dismiss an indictment of a Brooklyn real estate entrepreneur in relation to two virtual currency investment schemes and initial coin offerings (“ICOs”). The indictment, which charged securities fraud against Maksim Zaslavskiy, was based, in part, on the theory that the cryptocurrencies at issue were securities. In his motion to dismiss, Zaslavskiy argued that this premise was faulty and the ICOs offered by the two companies he owned, REcoin Group Foundation, LLC (“REcoin”) and DRC World, Inc. (“DRC”), were not, in fact, securities. The court, then, was called upon to consider whether the securities laws apply to cryptocurrencies. The court also considered Zaslavskiy’s argument that the securities laws are void for vagueness as applied to cryptocurrencies and token sales.
Continue Reading New York Federal Court’s View on Cryptocurrency as Securities

In a flurry of activity and confluence of developments, the SEC, FINRA and a Brooklyn federal judge have commenced actions and made rulings that continue to define the regulatory framework and obligations surrounding the sale and trading of digital securities, whether they are labeled as cryptocurrencies or tokens.
Continue Reading Recent Development in Regulatory Enforcement of Digital Securities

On August 14, 2018, the U.S Securities and Exchange Commission (“SEC”) issued a cease and desist order (the “Tomahawk Order”) against Tomahawk Exploration LLC (“Tomahawk”) and David Thompson Laurance (“Laurance”) for their actions in connection with an initial coin offering of digital assets called “Tomahawkcoins” or “TOM” (the “Tomahawk ICO”). Tomahawk and Laurance’s actions were problematic for the same reasons cited by the SEC in other recent orders related to digital assets (e.g. the Munchee Order). Consistent with such orders, the SEC determined that Tomahawkcoins are securities because they constitute investment contracts under the “Howey” test. However, what makes the Tomahawk Order particularly noteworthy are the lessons to be gleaned regarding cryptocurrency “airdropping.”
Continue Reading Airdrop of Crypto Tokens Hits Regulatory Flak

The SEC has been busy over the past couple of weeks addressing blockchain and crypto-related issues.

ETF Activity

The SEC rejected, for a second time, a request by the Winklevoss brothers for a Bitcoin exchange-traded fund. The primary reason given by the SEC was that the submission did not sufficiently explain how the ETF would prevent manipulation and fraud. The SEC has previously expressed additional concerns with crypto ETFs over liquidity, price manipulation and custody. Interestingly, the SEC Commissioner Hester M. Peirce voiced a strong dissent to the rejection, saying the rejection “sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin eTPES.”
Continue Reading SEC Blockchain and Crypto Update

Much uncertainty exists throughout the world on the legality and legal classification of crypto tokens. In the United States, Ripple was sued recently for allegedly selling unregistered tokens (XRP) in a violation of U.S. securities laws.  The US SEC and CFTC have held hearings and are assessing whether to classify certain tokens as securities and/or commodities. Both agencies have issued guidance on this (see, for example SEC and CFTC), but many issues remain.

Some industry experts have commented on the classification of three of the biggest tokens- bitcoin, ether and ripple. Many believe bitcoin and ether are not a security. However, debates exist as to whether ether or ripple are. Over 1500 crypto tokens exist, each with a different set of characteristics, function and purpose. The SEC has said most tokens are likely securities under the Howey Test.
Continue Reading How Crypto Token Function and Transferability Could Impact Classification as a Security

Read the full article here, authored by Richard A. Friedman and Andrea Cataneo.

An excerpt:

“When considering an offering of digital instruments that involves the use of blockchain
Continue Reading Issues to be Considered in Launching an Offering Involving Digital Instruments Based upon the Use of Blockchain