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Jim Gatto is the co-head of Blockchain and FinTech Team in the firm's Washington, D.C. office.

In an apparent follow up to President Biden’s March Executive Order on Digital Assets (which we previously discussed here), this week, California Governor Gavin Newsom signed a similar executive order aiming to foster responsible innovation, bolster California’s innovation economy, and strengthen consumer protection through creating a transparent regulatory and business environment for Web3 companies.  Newsom’s executive order credits Biden’s executive order as paving the way for the assessment of key issues raised by crypto-assets and sets California on a path to harmonize its nascent crypto regulatory framework with forthcoming federal rules and guidelines and, hopefully, create regulatory clarity for businesses and consumers.
Continue Reading Governor Newsom Signs Blockchain Executive Order

A recent class-action lawsuit alleges that the “Uniswap Protocol” exchange is one of the largest crypto-asset exchanges in the world, which permits the  unlawful promotion, offer, and sale of crypto tokens as unregistered securities. According to the complaint, Uniswap has no barriers to entry for users looking to trade or swap crypto tokens on the exchange.  It requires no verification of an individual’s identity and conducts no “know-your-customer” (KYC) process, leading to rampant fraud. The complaint further alleges that Uniswap has enriched itself and the other defendants (including its VC backers) by collecting fees for issuers on every transaction executed on the exchange that is not disclosed in a transparent manner, in violation of securities laws. Other allegations are that Uniswap offered and sold unregistered securities throughout the United States on its exchange without registering as a national securities exchange or as a broker-dealer and without there being any registration statements in effect for the tokens it was selling, all in violation of applicable law.
Continue Reading Uniswap and VC Backers Sued For Selling Unregistered Securities

As the world economy increasingly goes digital, innovators and existing market participants are finding new ways to tokenize assets and expand upon their uses, particularly with non-fungible tokens (NFTs).  NFTs have commonly been used to represent digital art, photos, videos, audio files, collectibles, game items, tickets, and other digital assets, but can also represent virtually any digital or physical asset as well as entitlements (e.g., tickets, subscriptions, exclusive access, etc.).
Continue Reading Tokenization and the Law: Legal Issues with NFTs

A couple rejected a refund settlement offer from the IRS over its tax treatment of tokens they earned from mining. Instead, the couple has sought formal adjudication on the issue from the federal courts. The government has filed a motion to dismiss claiming the issue is moot. The relevant issue is whether tax is due when crypto tokens are mined and awarded to the miners, as the IRS contended, or whether tax is due when the mined tokens are converted to fiat or cryptocurrency or otherwise used.
Continue Reading When Does Cryptocurrency Mining Create a Taxable Event? IRS Does Not Clarify

On March 9, President Biden signed a highly anticipated executive order outlining his administration’s cryptocurrency policy. We have previously blogged about the Biden administration’s working group on stablecoins and the Federal Reserve’s report on a potential U.S. central bank digital currency (“CBDC”).
Continue Reading President Biden Signs Executive Order Outlining Crypto Policy

For the past decade the crypto space has been described as the wild west. The crypto cowboys and cowgirls have innovated and moved the industry forward, despite some regulatory uncertainty. Innovation always leads regulatory clarity. There’s a new sheriff in crypto town – the US government and its various regulatory agencies. They seem intent on taming the wild west.
Continue Reading US Crypto Regulatory Enforcement Ramps Up – NFTs Now More in Focus

For some time now we have cautioned companies to seek legal advice for certain business models relating to NFTs. According to a recent report, the SEC is now targeting certain NFT uses. According to the report, the SEC is probing whether NFTs are being utilized to raise money like traditional securities. The SEC has reportedly sent subpoenas related to the investigation and is particularly interested in information about fractional NFTs. Fractionalization allows multiple people to hold (and trade) a share of an asset. Each share is represented by an NFT that represents a fraction of the ownership of or revenue rights associated with the asset. In some cases, this may meet the Howey test, which is one of the primary tests the SEC uses to assess whether a digital asset is a security.
Continue Reading SEC Targets NFTs

As frequently as you heard “NFTs” in 2021, you will hear “metaverse” in 2022. The common denominator with these topics is that both heavily leverage blockchain technology. The other common denominator is that both NFTs and metaverses involve a long list of complex legal issues. We have addressed some of the legal issues with NFTs here and here. The link below provides an overview of some of the legal issues with metaverses. We view metaverses as a confluence of technologies and business models which may include some or all of those set forth below.  Many companies are jumping into NFTs and the metaverse but don’t have a full understanding of all of the potential legal issues. As each metaverse is unique, it is important to obtain an assessment of the potential legal issues with your metaverse implementation or participation and the various technical and business elements you plan to use.
Continue Reading Are You Well “Versed” in the Legal Issues with Metaverses?

The Treasury Department’s Office of Foreign Assets Control (OFAC) took action last Monday, November 8, 2021, and sanctioned a Latvia-based exchange, Chatex, its associated support network, and two ransomware operators for facilitating financial transactions for ransomware actors. In total, OFAC designated Chatex and 57 cryptocurrency addresses (associated with digital wallets) as Specially Designated Nationals (SDNs). OFAC took this action pursuant to Executive Order 13694, issued in 2015, which provides broad sanctions authority to address the national security threat posed by malicious cyber-actors outside the United States.
Continue Reading OFAC Enforcement Impacts NFTs: As Crypto Enforcement Ramps Up to Combat Ransomware, Robust Compliance is Key