U.S. state and federal lawmakers, as well as federal regulators, are increasingly focusing on the role of blockchain and distributed ledger technology in ongoing efforts to combat climate change andContinue Reading Lawmakers and Regulators Examine Role of Blockchain Technology in Energy Transitions
Jim Gatto is a partner in the Intellectual Property Practice Group in the firm’s Washington, D.C. office. He is Co-Leader of the Artificial Intelligence Team, the Blockchain & Fintech Team, and Leader of the Open Source Team.
We have previously addressed the recent indictment against Nathaniel Chastain, a former executive of a major NFT marketplace, for insider trading involving NFTs. The indictment charges Chastain with one count of wire fraud and one count of money laundering. It does not allege that the NFT is a security. It does not allege violation of the insider trading laws under securities law. Since then, as we have reported, that SEC has been investigating lack of insider trading policies for NFT/crypto exchanges.
It is well known that insider trading—the practice of buying and selling stocks, bonds, or other securities based on material, non-public information—is unlawful. For that reason, many companies have compliance programs and policies that restrict trading by officers, directors, employees or other “insiders” with access to such information.
For quite some time, we have been advising that marketplaces and NFT/crypto issuers consider developing an insider trading policy. The SEC is now investigating this issue. If you do not have a policy this is a good time to do so.
A class action lawsuit filed by users of a decentralized finance (“DeFi”) protocol managed by a decentralized autonomous organization, or “DAO,” may shed light on the potential legal liabilities of a DAO and its participants. The complaint in Sarcuni v. bZx DAO, No. 22-cv-0618 (S.D. Cal. May 2, 2022), highlights several issues related to DAO liability of which DAO participants should be aware. There is a common misperception that an unincorporated DAO is not subject to liability because there is no entity for regulators to pursue. The fact is that such DAOs may be deemed general partnerships and the participants may each bear some liability for activities of the DAO. In some cases, a DAO includes a wrapper entity, in part, to shield participants from such liability. This issue highlights a tension between the aspirations of Web3 entities to be decentralized and community-governed on the one hand, and the challenges of accomplishing those aspirations given the current state of corporate law on the other hand.
The National Football League has announced a partnership with Mythical Games to create a blockchain video game called NFL Rivals. The game will use unique, generative 3D NFL franchise-themed NFTs and let players act as a general manager to assemble a team and compete against other teams.
The United States Attorney for the Southern District of New York and the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging Nathaniel Chastain with wire fraud and money laundering in connection with a scheme to commit insider trading in Non-Fungible Tokens, or “NFTs,” by using confidential information about what NFTs were going to be featured on [the marketplace] homepage for his personal financial gain. Chastain was arrested this morning in New York.
While the crypto community is rightfully focused on the Ripple case to see how the SEC will fare in court on enforcements alleging cryptocurrency offerings are a security, a lesser-known case may provide clarity first. The SEC’s suit against LBRY is scheduled for trial in September 2022.
The rise of blockchain, metaverse and Web3 technologies has lead to rapid adoption across all sectors of the economy. The government sector is no exception. Perhaps one of the most compelling examples is the recent announcement that the US military is building its own metaverse.Continue Reading Blockchain and Metaverse Legal Issues for the Government and Government Contractors
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